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What Higher Interest Rates Could Mean for Your Investments

Menashe Morley Group

What Higher Interest Rates Could Mean for Your Investments

Posted on August 10, 2017

Markets are sensitive and tend to react to sudden change or uncertainty with volatility. But that doesn’t mean you have to react every time there’s up or down movement in the Dow or S&P 500. It’s generally best to keep your overall strategy tied to your personal goals and situation — including your time horizon and the degree of risk you’re comfortable taking on. That said, the Federal Reserve’s recent interest rate increases do mark an important shift in economic policy, with the potential to affect the markets in both the short and long term.

When Fed policymakers met in December 2015, they saw an economy and job market that looked healthy and likely to keep improving, so they initiated a small rate increase. Since then, two additional rate increases have followed.

You can expect the value of your investments to fluctuate more than it has over the past few years as markets adjust to higher rates. Some investors are especially concerned about the impact the Fed’s rate increase may have on their bond investments because rising interest rates push down bond values in the near term. In fact, some bonds or bond funds may experience short-term declines. But the Fed has said repeatedly that future rate increases are likely to be small and gradual, which may minimize the impact on bonds. Moreover, for long-term investors — like virtually everyone saving for retirement or other future goals — rising interest rates may actually be good news. The reason: Over time, higher rates make it possible for bonds to pay more interest.

Regardless of what happens over the coming months, focus on investing for your time frame, which may extend over several decades. When it comes to your fixed income investments, it’s worth saying again that they’re essential to a diversified investment strategy. Bonds can generate yield and provide a source of income — and therefore returns — regardless of whatever might be happening in the markets.

The Fed will be watching to see how this year’s increases affect the economy. If the job market and other financial indicators remain strong, the Fed is likely to follow through on its plan for continued small interest rate increases. Along the way, you may see or read news reports on small changes in the economy, including predictions about the Fed’s actions and what they mean for the financial markets. Those stories shouldn’t influence what you do with your long-term investments. Your job is to tune out that noise and maintain a portfolio that gives you the opportunity to achieve your long-term goals.

For more information, contact The Menashe Morley Group in the Rancho Santa Fe office at 858-381-8113. The Menashe Morley Group, serving the community for over 32 years: David Menashe is a Senior Vice President and Wealth Management Advisor, Bruce Morley CRPC is a First Vice President and Wealth Management Advisor and John Naviaux CPWA is a Vice President and Wealth Management Advisor.

Important note on bond funds: Return of principal is not guaranteed. Bond funds have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the fund. Generally, the value of bond funds rises when prevailing interest rates fall and falls when rates rise. There are ongoing fees and expenses associated with owning shares of bond funds.

Merrill Lynch makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and other subsidiaries of Bank of America Corporation. Investment products: Are Not FDIC Insured, Are Not Bank Guaranteed, and May Lose Value. MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation. Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

© 2017 Bank of America Corporation. All rights reserved. ARRLBMM6

Menashe Morley Group
Menashe Morley Group

Photo Caption: Menashe Morley Group

Photo Credit: Photo by Zach Tanz


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