All My C.D.s Are Earning Nothing! - Lakeview Village
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All My C.D.s Are Earning Nothing!

All My C.D.s Are Earning Nothing!

Emerson Hartzler

Emerson Hartzler

By Emerson Hartzler

During the past couple of years, as I have had the pleasure of hanging out with folks at our Continuing Care Retirement Community (CCRC), I can’t tell you how many times I’ve heard this lament! Or a companion statement is: “I don’t want to take any risk, but I sure wish my investments were earning more.” I believe this angst is rooted in a fundamental lack of understanding of financial risk. Newsflash: if you have money, you are going to be taking risk. It is absolutely unavoidable.

Now the question becomes: “How much risk can I afford to take?” But before we address the answer to this very legitimate question, we need to be clear about the definition of financial risk. Exactly what is it? Financial risk comes in three major flavors: Inflation, Business and Systemic (I know, now we get “geek speak”). Actually, it’s not really very complex, and anyone with reasonable cognitive skills can understand it.

So let’s take them one at a time. If you put $10,000 under your mattress and take it out ten years later (assuming it hasn’t been stolen by your housekeeper), you will still have $10,000. But it will probably buy about 1/3 less than it does today. That’s called Inflation Risk, and it is the financial risk, as a senior, I fear the most. I only have six years’ experience living on a “fixed income” (I approached my friends at the Social Security office about a quarterly bonus – they were not sympathetic), but the thought of continuing price increases without some corresponding income growth is a bit frightening to me.

The point is, your “safe” investments in C.D.s, Money Market funds, and savings accounts are anything but safe from inflation risk. To mitigate inflation risk you have to look for alternative investments. But if I invest in stock (ownership of a company), what if that company does not prosper or even fails entirely? Now I’ve taken Business Risk and lost it all!

As a lad growing up in Ohio, I can remember the September evenings when the 18-wheelers from the General Motors factory in Detroit would pass through our small town with the new model year cars on board. That was pretty exciting for a teenager looking to get his driver’s license soon. If you told me in 1959 that GM was a risky investment I would have asked you what you were smoking! GM owned the U.S. car market and was making inroads abroad. Yet without the “bailout,” some experts argue, GM would not even exist today. (I hope you don’t own any Detroit municipal bonds, either!)

So business risk is real. However, this is perhaps the easiest risk to mitigate, simply by owning the stocks of a lot of companies, not just one. At last count I owned (tiny pieces of) about 12,000 companies, and I’m pretty sure one or more of those will soon fail. But from a personal financial perspective, I don’t really care.

Finally there is Systemic Risk. The value of all of my 12,000 companies could take a serious hit because the entire stock market is in a swoon. I’ve lived through such market downturns many times in my 45 years of investing, but in my lifetime, the longest such “down period” in the stock market has been about four years. So the antidote to systemic risk is simply to avoid investing money in the stock market when you have a reasonable expectation you will need to spend that money in the next four years or so.

Fortunately, seniors living in a CCRC can predict, with a high degree of probability, what their expenses are going to be during the next few years, and the good news about being on a “fixed income” is it is largely fixed (that is to say, predictable). So it should not be too difficult to determine what funds should stay in those aforementioned “safe” investments (earning little or nothing, but at least being available for spending during the next few years), freeing the remainder of your money to be invested where it can be expected to earn a return well above the historic rate of inflation.

You probably never considered what impact living in a CCRC might have on your ability to earn a reasonable return on your investments. But seniors, you have worked a long time for money. Now it is time for your money to work for you!

Emerson Hartzler, MBA, is a Lakeview Village resident, and, though he lives in a retirement community, he continues working as a financial advisor for Triune Financial Partners, LLC, at Lighton Plaza, 7300 College Blvd., in Overland Park, Kan. Reach Triune at 913-825-6100.

Learn more about Lakeview Village–the senior neighborhood of choice, and the largest retirement community in Kansas–by visiting our website at lakeviewvillage.org, or checking us out on Facebook

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