On Wednesday the Federal Open Market Committee announced their findings (outlook for the market), any changes in short-term rates and initiatives. Here is what Chairman Bernanke said at one point during the press conference, “”Most people do not “save” in their mattress.
They own a ‘basket’ of securities. They should do fine.”

What? Come again?

Clearly Mr. Bernanke does not have a parent on a fixed income (facing higher costs at the doctor, the grocery store, at the pump, etc.), clients he advises who are rightfully risk averse and search for income or speak to Americans that no longer rely on their real estate or stock portfolio solely to fund a fantasy retirement.

I mentioned in a previous entry about how pension plans are coping. One of the largest public pension plans in the US earned 1.1% in 2011. Their target was 8%! Many investors are in the same predicament. Unless you win the lottery or get a massive gift you must cut expenses or save more of your income to help bolster your retirement.

According to The Wall Street Journal, “The US Federal Reserve
predicted that interest rates will stay on hold at least through late
2014 in a dramatic extension to the period for which it expects to keep
rates low. The Fed’s previous forecast was of rates on hold until
mid-2013. The statement acted as a significant easing in monetary policy
by moving out market expectations of the first rise in interest rates
and led to an immediate fall in bond yields.”

However, with interest rates at zero (ZIRP – zero interest rate policy) for an extended period of time Mr. Bernanke is essentially pushing investors out onto the risk limb in order to search for higher (read: riskier) yields or growth sectors. We saw a tremendous rally in the commodity complex after the announcement and the dollar got smashed.

While it is difficult to fight the Fed and hard for investors to be patient with low returns, it is paramount to access the risks in each investment and spending decision. Yes over time the investment landscape will improve, but with deleveraging it will take a longer period of time to fully recover. After the market has sprinted to a ~5% gain in the first three weeks of the year, it may not be a bad time to take some profits. Remember, no one ever lost money taking a profit. Yes potentially opportunity cost, but not actual money. Stay tuned! {TJM}

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