Learn how your financial advisor can redirect investment strategies during times of high interest rates
Interest rates have been low these past few years, with short-term rates well below one percent. But, with the American economy rebounding, the Federal Reserve has announced that it intends to raise interest rates a few times during 2018. For clients working with a financial advisor, you might be wondering how rising interest rates affect your investment strategies? As interest rates begin to rise, you may want to speak to your financial advisor about whether or not reformulating or restructuring investment strategies is necessary.
As interest rates rise, long and short-term fixed-income investments may suffer. Generally people who are retired hold these types of investments because they are not as risky as other investments and they add an additional monthly income stream for the investor. But with a fixed-rate they will not receive any increases in their income. If you hold any of these types of investments, you may want to determine if any should be redirected in order to benefit from the rise in interest rates.
Other investment strategies you should consider involve divesting of long-term bonds, which will lock you into existing rates for a longer period of time. Redirect those investments to short and medium-term bonds along with other investments to compensate for the lower income earnings. Other investment strategies could include floating-rate debt and Treasury Inflation-Protected Securities (TIPS).
A good financial advisor may promote specific stocks as smart investment strategies when interest rates rise. Investing in companies that purchase raw materials to turn out their products is usually a safe investment. During times of rising interest rates, the price of raw materials usually stays the same, or declines, which helps to increase profits. Companies such as these are often viewed as a good hedge against inflation.
Another investment strategy that a financial advisor may recommend to you is to invest in a bond ladder. This type of investment is structured so that various bonds mature at different dates, and as each bond matures it is re-invested at the new, higher interest rate. This strategy also works well with bank CD’s that have short-term maturity dates. As the CD’s mature, they are re-invested in other short-term CD’S to take advantage of the rising interest rates.
If part of your investment strategies were to invest in foreign currencies, now night be the time to re-direct those investments to American instruments like notes, bonds and T-bills which usually out-perform foreign currencies during times of rising interest rates. As the American dollar becomes stronger, it will attract more foreign investment into American currency products, helping to advance investments.
Other financial and investment strategies your financial advisor may recommend include seeking to re-finance your mortgage if it is not locked into a fixed rate. This would also apply to any outstanding loans you may have that fluctuate with rising interest rates. Good investment strategies during times of higher interest rates also include reducing high-risk investments, and trading them for safer, more conservative investments that usually pay well during these periods.
Also keep in mind that inflation hedges like gold and other precious metals do not perform as well during times of higher interest rates.
As interest rates rise you should consider investments that reduce accounts that produce passive income, and instead increase cash weighting accounts that increase income. Investment in bank stocks is also on the rise because they tend to do well in a rising interest rate environment.
These are just a few ways to readjust your investment strategies during times of rising interest rates. For more specific strategy ideas for your unique financial situation, reach out to the skilled team advisors at www.SummitBrokerage.com
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About Summit Brokerage Services, Inc.
Summit Brokerage Services is part of Cetera Financial Group. Summit Brokerage provides a broad range of securities brokerage and investment services to primarily individual investors. Summit Brokerage also sells insurance products, predominantly fixed and variable annuities and life insurance through its subsidiary, SBS Insurance Agency of Florida. Summit Brokerage also provides asset management services through its investment advisor, Summit Financial Group, Inc.
About Cetera Financial Group
Cetera Financial Group® (“Cetera”) is a leading network of independent retail broker-dealers empowering the delivery of objective financial planning advice to individuals, families and company retirement plans across the country through trusted financial advisors and financial institutions. Cetera is the second-largest independent financial advisor network in the nation by number of advisors, as well as a leading provider of retail services to the investment programs of banks and credit unions.
Through its multiple distinct firms, Cetera offers independent and institutions-based advisors the benefits of a large, established broker-dealer and registered investment adviser, while serving advisors and institutions in a way that is customized to their needs and aspirations. Independent financial advisor support resources offered through Cetera include award-winning wealth management and financial planning and advisory platforms, comprehensive broker-dealer and registered investment adviser services, practice management support and innovative technology. For more information, visit www.ceterafinancialgroup.com.
*”Cetera Financial Group” refers to the network of retail independent broker-dealers encompassing, among others, Cetera Advisors, Cetera Advisor Networks, Cetera Financial Institutions, Cetera Financial Specialists, First Allied Securities, Girard Securities, and Summit Brokerage Services.
All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy.
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