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Be careful if you are looking for a higher interest rate

This week I ran into a piece written by the outstanding hedge-fund manager Seth Klarman in 1992. It’s however so relevant to the current market environment it may as well have been written yesterday.

The article called Don’t be a Yield Pig, is just 2 pages long but definitely worth 5 minutes of your time.

If you are frustrated by the current low interest rate environment I understand completely.

Both my parents have asked me if its not worthwhile to look for something else offering a higher return. My advice to them was to please stay away from all the fancy higher rate offers currently available.

As when interest rates rise or if the economy goes into recession again and companies start defaulting or lose credit quality your capital is going to be at risk.

All my spare cash is on call in the bank earning peanuts. But I would rather earn 1% or so less now than have 20% to 30% of my capital at risk.

I wish you a nice weekend.

Source:

Don’t be a yield pig – Seth Klarman in 1992 – Value-Stocks-Plus Blog