Is your broker making money lending out your cash? Because in times like these, banks are making money any which way they can. Thankfully Fidelity is not a bank. You can rest assure they’re not loaning out your cash.
What are you sure about today? I’ll tell you what I know. First and foremost, we need to come to grips with low interest rates. This is more troubling than you think.
When interest rates are this low, the average investor (not you, I hope) can’t sit still and just earn a couple percent. The average investor needs more. The average investor will think nothing of lending it out for some mortgage deal or something or other.
Look, I’m the weatherman, not the weather. When interest rates are as low as a storm drain, that’s the weather. You and I can’t change that no matter how much we try to.
My advice? Make a bond ladder where you control the credit and interest rate risks. It isn’t easy when quality bonds are as hard to find as pressure-treated wood in a pandemic. When everyone’s building a deck, you need to have a tight relationship with the lumber yard—one that will take your call no matter what.
The reason I like a bond ladder is because of its maneuverability—you can adjust it based on the weather. Some days will favor more credit risk, while other’s don’t. But determining how much is more art than science. How much control will the Fed really have in the future?
What is crystal clear is that “wealth” managers and advisors who stuff your portfolio with ETFs and mutual funds charge you a management fee on top of the expense ratios on your funds. Don’t throw your hard-earned cash down the drain. Make sure you know what your bank or high fee advisor is doing with it.
Action Line: Is your broker lending out your cash or charging you two percent? You should probably find out. You can do that by simply asking. It’s no harder than that. You owe it to yourself.
