The Federal Reserve’s March announcement to raise interest rates marks just the 3rd time in a decade that rates rose, so investors are in uncharted territory.
Brian Gracie, founder and financial planner with Heritage Financial Consultants and a registered representative of Lincoln Financial Advisors, recently shared his insight on the challenges and opportunities the may come from this year’s rising interest rates in The Wall Street Journal.
He noted that a single increase on its own may not make much of a difference, but if short-term rates rise more regularly, the impact for investors could be more dramatic. Rising interest rates can be both a benefit to and a drag on savings.
Higher interest rates mean investors will earn a better return on money market funds, but rising rates reduce existing bond values. While this may cause concern, bonds help diversify portfolios, which can help offset the impact of stock market volatility.
So how can you protect yourself in today’s environment?
The key is to remain diversified and use a variety of strategies to reduce volatility, minimize price pullbacks and remain flexible.
Diversified portfolios help suppress volatility over time, and most importantly in today’s market, protect from inflation. To help diversify your portfolio further, explore stable value funds or fixed accounts, if offered. These are alternatives to bonds, offering a set interest rate that may not be affected by potential future rising interest rates.
For some investors, strategies may include developing or transitioning their portfolios to include dividend paying stocks, growth stocks, short/intermediate municipals as well as inflation protected bonds, coupled with alternative investments to include REITS, MLP’s, private equity, absolute return and managed futures holdings.
And if you’re not already, meet annually with your adviser to review and assess your asset allocation.
Read Brian’s full article in The Wall Street Journal here.
Brian Gracie is a registered representative of Lincoln Financial Advisors. Securities and investment advisory services office through Lincoln Financial Advisors, a broker-dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Heritage Financial Consultants is not an affiliate of Lincoln Financial Advisors.