By RUTH SIMON and BEN LEVISOHN, The Wall Street Journal
Robert Marcotte can’t afford to play it safe anymore. With interest rates likely stuck near zero for nearly three more years, the 61-year-old retired telephone-company manager is about to ramp up his holdings of stocks and municipal bonds, using money now at the bank in certificates of deposit.
“It gets me a little uneasy,” says Mr. Marcotte. “Since I’m not working, I am very risk-averse, but still need to generate income.”
The Federal Reserve is presenting a broad swath of conservative investors, from retirees and college savers to banks and insurance companies, with a tough choice: move into riskier investments or continue coming up short from low-risk investments that aren’t even keeping pace with inflation.
The central bank has held short-term interest rates near zero since late 2008 to spur the economy and help the housing market. One side effect of that policy is lower returns on savings accounts and other low-risk investments.
When the Fed announced last week that it likely will keep rates at rock-bottom levels through 2014—almost three full years from now—some risk-averse investors began to abandon hopes that rates would rise soon.
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