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Hamilton Plans Newsletters

Fall 2013

Low Interest Rate Environment Strategies

The Federal Reserve Board’s decision to keep interest rates low through 2014 has made ­producing income a challenge. Does one accept a low return to protect principal? Or, implement strategies to potentially earn a higher return? Some individuals have considered the options identified below. Please note, before taking action always consult with your financial, tax and legal advisors.

  1. When selecting stocks, focus on companies in sectors closely tied to economic health and whose earnings and dividend payouts are growing. Technology and health care may be examples.
     
  2. Alternatively, select closed-end funds — mutual fund like portfolios that trade on an exchange as if they were individual stocks. Such funds follow a strategy of writing “covered call options” on their stock holdings — essentially selling to other investors the right to buy those stocks at a certain price. Selling the options generates income for the funds’ investors and produces yields much higher than the norm today. Beware, however, of funds that use inappropriate levels of leverage.
     
  3. Consider REITs whose returns were more than three times those of the broader equity market at times this past year.
     
  4. Use an age-appropriate asset allocation strategy and re-balance regularly.

Another Way to Boost Your Income

Another way to boost your income is to use a strategy similar to Milt Kayle by establishing a life payment gift. A chari­table gift annuity with Hamilton will make fixed quarterly payments to you during your lifetime. If you are age 62, you would receive 4.5% per year. For a donor age 72, the rate is 5.4%, and for a donor age 82, it is 7.2%, with the remainder designated for the purpose of your choice at maturity. Your effective rate of return will be higher when you consider income and capital gains tax savings. Please call us for a personal illustration.