There are millions of senior citizens as well as others who have retired. Most of these people have invested their retirement payment in securities or certificates that bears interest. They may make investments in AAA corporate bonds, Money Market accounts, Treasury Bills, Government National Mortgage certificates, Certificates of Deposit and other kinds of investments. The elder people invest in these because the value of their investment usually does not change.

Moreover, they are regarded as safe and sound investments.

Many of the elders purchased these investments some time back and as such their maturity date is approaching. In other words, these investments are ready to be called by the companies that have issued these investments. These investments are commonly known as bonds. When these bonds mature or are being called by the debtor (the company) before the expiry of the date of maturity, the debtor will pay off the creditor (purchaser of such bonds). Since the purchaser of these bonds is now paid off, they have cash with them, which they can invest in some other debt instrument or bonds.

Let’s take an example of Joe Smith who has a bond portfolio of $100,000 CD. The interest that he has been getting each year for his investment is about $5000 to $6000 per year together with Social Security since his house is being paid.

The Federal Reserve Board has reduced the rate of interest by ten times this year because of the fall in the economy. The Federal Reserve Board has done this in order to induce the businesses to ask for more loans for expansion. Regrettably, most of these companies do not need loans even at low rates because they have equipments and plants that are not being operated. Of course, they do refinance their debt but this is not the result that the Fed was expecting.

Old Joe goes to the Bank to purchase a new CD but discovers that the 2% to 4 % is the best rate of interest that he can get for his investment. As a result, his income from interest has reduced by almost half. He isn’t going to get the same amount of interest income as he was getting before.

He tells himself that in order to have three meals a day regularly, he has to do something about it. Just then, someone informs Joe about mutual funds and portfolio diversification. Diversification means that the financial planner or broker is not sure what he should do with the money so he invests a part of the money in one instrument and other part(s) in another instrument(s). Then he hopes for the best so that he can get earn good interest. If you have listened to this story then you know what I mean to say. Everything does not work out easily.

Poor Joe was pushed into the stock market and is in a bad position now.

What I want to tell you is that do not just blindly invest in some thing if you do not have knowledge about it. It is more important to ensure that your money is safe. I will always recommend you to spend a part of your money when you require it instead of taking a risk and investing in the stock market.