Many millions of senior citizens and others have most if not all of their retirement portfolios in interest bearing certificates of some kind. Many have Treasury Bills, Certificates of Deposit, Government National Mortgage certificates, Money Market accounts, AAA corporate bonds and more. They have these because they are considered safe and secure and most don't fluctuate in value.

Most were bought some time ago and many are coming to maturity or are being called. When a bond, that's what they all are, matures or is called (meaning the debtor wants to pay it off sooner than the maturity date) it is paid off by the debtor to the creditor, the one who bought the bond originally. Now that person has a handful of cash and usually buys another debt instrument.

Joe Smith has a $100,000 CD in his bond portfolio. He has been realizing an income of about $5,000 to $6,000 per year in interest income. Along with his Social Security he has been able to get along because his house is paid for. He is just making it.

Because of the slowing economy we have seen the Federal Reserve Board lower interest rates ten times this year. This is supposed to stimulate the economy by getting businesses to borrow more money to expand. Unfortunately, many of these companies have plant and equipment standing idle so they don't need to or want to borrow even at these low rates. Yes, they will refinance their debt, but that is not going to create the results the Fed wants.

Poor old Joe heads down to the bank to buy another CD and finds out that the best interest rate he can get for himself is about 2% to 4%. His interest income has shrunk 40% to 50%. Where he was getting by before now he ain't gonna make it.

Joe says to himself, "I have to do something different if I am going to keep eating on a regular basis". Someone gets hold of Joe and tells him about portfolio diversification and nice conservative mutual funds. When any broker or financial planner talks about diversification it means they don't know what to do with the money so they put some here and some there and hope for the best. Anyone who has listened to this story knows what I mean it doesn't work the way it was presented.

Joe has been suckered into the stock market where he doesn't belong and is now locked into some bad positions.

The moral of this story is don't invest in something you don't understand by some smooth talker. The safety of your principal is much more important. It may be better to spend some of the principal as you need it rather than take a chance on higher returns that fluctuate in value.