![]() ![]() But times have changed, and depending on where you hold your cash, the yield differential between higher-earning and lower-earning cash accounts has gotten more meaningful. Shopping around for higher yields didn’t seem worth it when interest rates were so persistently low it was hard to get excited about picking up an extra 50 basis points in interest. If you’re in a low-yielding (read: high-cost) cash account, your investment provider won’t automatically swap you into a higher-yielding option. But when it comes to wringing a higher yield from your cash holdings, complacency isn’t your friend. If you practice a policy of benign neglect with your portfolio, that’s usually all for the best. Mistake 1: Being Complacent With Cash Holdings For example, with higher yields on safe securities, our starting safe withdrawal percentage from new retirees bumped up to 4.0% in 2023, from 3.8% in 2022 and 3.3% in 2021, when yields were at their nadir.īut higher yields also bring potential pitfalls, including the following five mistakes. That, in turn, makes other aspects of financial planning easier. Higher yields lift the long-term return prospects for bonds and other short-term assets, meaning that investors can earn higher returns without having to venture into riskier asset types like stocks. Notwithstanding those bobbles, however, higher interest rates are largely a positive for investors. Those rate increases were partly to blame for stocks’ and bonds’ losses in 2022: Higher yields depress the prices of already-existing bonds with lower yields, and higher interest rates also threaten to slow the economy, which in turn hurts stock prices. They’ve more than doubled since then, as the Federal Reserve hiked interest rates 11 times in an effort to stamp out inflation. Just two short years ago, yields on 10-year Treasury bonds were below 2%. ![]()
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