Before the start of this column, I would like to address comments sent to me last week regarding investments. The persons said that they were concerned that because their investment philosophy was different from mine, I might therefore want them to invest my way, or decline to help them.

Just to clarify this point, Certified Financial Planners never, I repeat, never promote their own values, expectations, investment philosophy, religious, political beliefs or any other personal prejudices onto a client.

It is unethical and morally irresponsible for any planner to practice in this manner; if you have ever received this type of blatant experience you have grounds for complaints to the planner's licensing authority, be it Canada, the United States, the UK, or elsewhere.

Unethical planners (if they have a licence) found liable of direct contravention of CFP licensing regulations can be publicly disciplined in published newspaper notices and stripped of the right to be licensed. Similarly, the US National Association of Securities Dealers consumer Website regulates all brokers and any disciplinary actions against them, in the same manner. Our role as planners when working with a client is to provide independent, objective financial advice, nothing less. We present alternatives to a client's present and future financial situations; we provide investment advice and recommendations that are directly based upon the clients' investment risk tolerance and suitability; we educate our clients so that they make informed choices.

But, in the end, it is always, always, the clients' right to choose to implement the plan.

SOME INVESTMENT ALTERNATIVES TO LOW FIXED DEPOSIT RATES

Two weeks while watching the Chairman of the Federal Reserve commenting on the state of the US economy, I was reminded that the United States Federal Reserve has dropped the Fed Fund lending rate six times since the beginning of the year. This is no longer news.

What everyone is watching for now is the Fed meeting on Tuesday. US economic news is not good; the commercial industry borrowing level has dropped 20 percent in the last six months, inventories of certain goods is still high. Those trends combined with the number of layoffs indicate a still slowing economy. In some parts of the US country, consumer spending is dropping also. Until economists see some uptake in activity, the Fed Fund rate will come down again.

AN ABRUPT CHANGE IN THE STANDARD OF LIVING

Lowering interest rates is particularly tough for anyone living on a fixed income, particularly if you are accustomed to a certain standard of living. As interest rates drop globally, local financial institutions have reluctantly had to follow suit.

We are no longer a small stable island with an insular economy, mortgages loaned out at nine percent, interest on deposits paid at seven percent to 7.5 percent. Truth be told, we had it very good for a long time, so long that local residents felt they were entitled to these rates and amazingly, that they should still be guaranteed today.

AND THE BUSINESS DOORS OPENED

When Bermuda opened the doors to international business and capital funds flow generated therein became susceptible to global interest rates pressures, we changed forever the way sources of capital are obtained, and how capital is used.

Almost all, if not every financial institution in Bermuda invests in global capital markets; if their cost of money rises, they will sooner or later have to raise mortgage rates, and fixed deposit holders reap benefits.

If the cost of money drops, and they realise less from their global investments, they cannot afford to pay high deposit rates, but the mortgage holder benefits from the interest rate drop.

For the retiree and anyone else dependent on the entire interest earned on their fixed deposits, there may be severe income level drop, more than 30 percent in some cases. Regrettably, many of these individuals have no way to recoup this income, such as with a part-time job, or a raise in pay.

WHAT CAN YOU DO TO MAKE UP FOR THIS DEFICIT?

Realise that this is not a cause for panic. Interest rates most probably will not stay at such lows forever, historically, as the US economy rebounds, interest rates rise, and the entire market and financial cycle starts again.

To wit, homes become too expensive, salaries are out of control, inflation appears again, stocks become overvalued, the markets rush to new heights, until it is all unsustainable, and we end up back where we are now.

So, for right now, to temporarily ease yourself across this rate bridge, there are several strategies you may use.

LEAN AND MEAN

If you are not comfortable with any capital market investing, then you must sit tight, squeeze every penny harder, and try to tighten your belt a little more. You may have to use some of your principal, and plan on replenishing it when interest rates return to a higher level. If you have a rental property, you may have to consider raising the rent. See how the insidious trickle down theory that President Reagan was so famous for, works. I realise that there are many residents who have already practised all of these frugalities, and there just is nothing left to cut back on. Unfortunately, I do not have an answer for them, but my heart goes out to those facing yet another challenge in their lives.

FIXED INCOME

DEPOSITS

For those inexperienced in investing, but willing to take on some risk, find yourself a reputable experienced financial advisor. Discuss placing a portion of your savings into a money fund, or an ultra-short term bond fund, or very high credit quality corporate bonds, or very high credit quality preferred stocks. These kinds of capital market investments, on average, pay a higher rate of interest than fixed deposits. How do they do this, what are these investments and how can they work for you? Go on out now and do your homework. Interview your advisor choices carefully; ask how they can help you; get a full explanation of each of their recommendations; take notes if you need to; bring home all the brochures, prospectuses, fact sheets and read them. Next week - we discuss the pros and cons of these particular investments and where they are available in Bermuda. The opinions and advice expressed in this column are the author's alone and should not be construed to be reflective of any organisations' endorsement of such opinion. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or any other investments or advisory services. Readers needing specific assistance should seek advice from an experienced professional financial advisor.

Martha Harris Myron CPA CFP(is a Bermudian and a Certified Financial Planner (practitioner. She is Education Director of the Financial Planning Association of Bermuda (FPAB).

Winner: Bermuda Gold Award for Best of Bermuda Investing Advice - 2001

Questions regarding this article may be sent to marthamyron northrock.bm.

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