“The Age of Man is over. The Time of the Orc has come.” –Gothmog, The Lord of the Rings

“The Age of the Saver is over. The Time of the Borrower has come.” –Ben Bernanke, former Federal Reserve Chair


No, the second quote was not actually uttered by Ben Bernanke, but it may as well have been.

You might remember that the people of Gondor in the final Lord of the Rings film have two choices: they can listen to Denethor, the same crazy old man who has been leading them for decades, or they can listen to this Gandalf the White character who has come back from the dead and has all these magical notions. At the beginning, they listen to Denethor and charge the river, at which point the orc general Gothmog issues the above  proclamation.

Savers, welcome to Gondor.

A full 62% of Americans have less than $1,000 in their savings account according to a recent Google Consumer Survey (from Market Watch). Among millennials, a whopping 30% have zero dollars in a savings account. Some of us are not even fighting the battle!

But what do you do if you are ahead of the game and are actually saving money?

Money market mutual funds—the symbol of “super safe investing”—were offering 0.01% until the Fed hike last year. Now they are offering…wait for it…0.5%.

Treasury bonds were once the next-step up—pretty safe, assuming the government doesn’t go bankrupt. The 10-year Treasury bond is 1.7% right now. That means if you give the government $1,000 for 10 years (or risk selling the bond before then, in which case there’s no guarantee you get all your money back), they will give you $17 of interest every year.

The Federal Reserve has shown no indication of reversing these trends—and worldwide? In Europe and Japan, there are bonds with negative interest, meaning that you pay money to not lose money! The orcs are running loose with savers’ money, but at least borrowers are in good shape—imagine being paid to borrow?

We savers need to strike back, but the problem might be that we’re still playing by the old rules, still listening to crazy old Denethor who sends us out there on horseback to fight the orcs and the winged beasts again and again. The central banks are forcing us to take more and more risk to obtain the same savings.

The old rules for retirement investing were simple: 60/40. Put 60% in stocks and 40% in bonds, and you would be on your way to a reasonable 7-10% return per year. Voila. Done. Problem solved. But let’s look at the old rules in terms of the current picture:

Do we put that 40% “safe” part in US bonds that might get us 1.4% a year in a diversified bond fund? Yes, it’s safe, but with only 1.4%, the rest of our portfolio now has to make up the difference.

Do we put any of that 40% in International Bonds, as some robo-funds do? Many European bonds have lower rates than their US equivalents, and sure, we can find better interest by lending money to Argentina—but is this still the “safe” 40% part if we do that?

What about International Stocks? Many robo-funds put some money into “developed” international (what do we think European stocks will do? Japanese stocks? What happens in the currencies of Europe or Japan go down and the stocks are suddenly worth less in dollars?). They also buy some “emerging market” stocks (China, India), which is where many believe growth will be.

Diversification is designed to reduce risk, and it’s important—the old “never put all your eggs in one basket” mantra—but if we “diversify” into something with more risk, then by definition we’re not really reducing our risk at all. If we decide to guard the city and charge the river, but we know that charging the river is a bad idea, then are we really better off doing both?

The problem is that while the world has changed, the formula has stayed the same. Maybe it works out. Maybe the central banks continue to prop up the stock market and force savers into risky assets, and it pays off. Maybe the stock market goes up another 100%. Maybe the hordes of orcs decide to turn around and go home. Maybe if we just follow 60/40, stick our money in a robo-fund, and never think about it, everything will work out.

Oops, I’ve broken a cardinal rule of writing. I’ve used the word maybe too many times. I may as well use it a few more:

Maybe it’s time we change the paradigm a bit. Maybe it’s time we looked twice at the old rules before applying them. Maybe it’s time we called Rohan for another opinion. Maybe it’s time we search a second time for information before making a decision. Maybe there’s a word for that—and maybe it’s research.