Kyle Tomko Highlighted in Broker World Magazine

Financial advisors have had it easy.

While this statement may come as a shock given the lack of substance, please let me explain before you take offense. Since 1981, the 10-year treasury touched 15.84 percent at its peak and has since trended down close to zero percent in 2020 and 1.88 percent since writing this piece. That is 40 years of interest rate decline all while the cost to borrow continues to remain near historic lows.

The first question to ask ourselves is whether low interest rates qualify as good news. Let’s look at three parties. To borrowers looking to borrow, good news, no, great news actually! To lenders looking to lend, not really—due to reduced margins.

To conservative investors seeking income, bad news, as the rate you earn is less than the percentage increase in the cost of goods. In addition, if you are counting on fixed income investments as a primary source of retirement income, you may have more risk in your portfolio than you realize.

And if interest rates go up? The opposite is true…for most. Borrowers will end up paying more interest over time extending their personal liability. Lenders will reap the benefits of increased spreads from what interest is paid to customers and interest that banks can earn by investing. However, the fixed income investors seeking safety are put in a bind.

While I certainly don’t have a crystal ball to predict what’s going to happen in the future with interest rates, I do believe the writing is on the wall on where they’re likely headed.

I want to hold advisors accountable in providing their clients all viable options for when the current bond bull run ends and a new interest cycle begins (in the opposite direction).

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