Investing for income in a low interest rate environment

Should interest payments be made with discounted assets, the amount of wealth transferred would not be as large If rolling GRATs are used, the economic benefits are often magnified as compared to those of single GRATs especially single GRATs with terms longer than 2 years.

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PPG Advisors does have a limited number of client investors asking about stock dividends. But there again the options are limited. Many of those with decent yields are in energy and utilities. It is not advisable, he says, to concentrate resources on just a few sectors. In addition, he points out that there are tax considerations to take into account.

Still the threat of increased risk looms large for some advisors and their investors. He offers some alternatives like longer term bonds or preferred stock. But Mabie is ever mindful to approach risk carefully with many clients. Michael Klein echoes these thoughts. They have to be coached or guided to the fact that at some point there will be a change. Interest rates will need to move up because of inflationary pressure.

In general, savers and lenders will tend to lose out while borrowers and investors benefit from low interest rates. The red line represents the risk-free rate one-year Treasuries and the blue line is the fed funds rate. Both rates are often used to describe the risk-free rate. The Federal Reserve lowers interest rates in order to stimulate growth during a period of economic decline.

That means that borrowing costs become cheaper. A low interest rate environment is great for homeowners because it will reduce their monthly mortgage payment. Similarly, prospective homeowners might be enticed into the market because of the cheaper costs. Low interest rates mean more spending money in consumers' pockets. That also means they may be willing to make larger purchases and will borrow more, which spurs demand for household goods.

This is an added benefit to financial institutions because banks are able to lend more. The environment also helps businesses make large purchases and boost their capital. Drawbacks of a Low Interest Rate Environment Just as there are advantages to a low interest rate environment, there are also drawbacks, especially if the rates are kept extremely low for a long period of time.

Lower borrowing rates mean investments are also affected, so anyone putting money into a savings account or a similar vehicle won't see much of a return during this type of environment. Bank deposits will also drop, but so will bank profitability because cheaper borrowing costs will result in a decrease in interest income. These periods will increase the amount of debt people are willing to take on, which could be a problem for both banks and consumers when interest rates begin to rise.

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