What should the prudent investor do in an increasing interest rate environment?

Now is an ideal time to review or revisit your bond holdings to identify what, if any, changes you may need to make.

Bonds are usually an essential part of a conservative portfolio: they provide income and are usually more stable than stocks. If you are retired and relying on investment income to pay the bills, in most cases, it’s not appropriate to invest only in equities. Unfortunately, the Federal Reserve’s recent strategy of keeping short-term rates near zero has made it nearly impossible to earn very much on your fixed income investments and cash. 

All investors need to be cautious with their fixed income investments, especially those close to or in their retirement years.  Stability and income will always play a role in financial planning. Here are four suggestions that can help:

Maintain complete liquidity for all short-term and near-term needs.  Liquid accounts in today’s interest rate environment will probably not keep pace with inflation. Although it is always important to maintain a liquid component in your portfolio, you should think about what major expenses you will incur in the next two years and consider keeping a larger than typical liquid pool of assets.

Choose shorter terms over high yields.  Although shorter term bonds yield less than longer term bonds, they typically lose less value when rates rise.

Review all of your income producing investments.  As an advisor, I help my clients review the income producing investments they own.  Our primary goal is to match your portfolio to your timelines and personal financial situation.

Monitor your portfolio regularly. Interest rates can move quickly or slowly.  In either case we can help monitor your portfolio and suggest adjustments as needed.

Give us a call at 541-574-6464 or email me your questions at financial.freedom@lpl.com 

Julia Carlson is a Wealth Advisor.

Securities are offered through, LPL Financial.  Member FINRA/SIPC. This article is for informational purposes only.  This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.