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Should my investment portfolio stay the course of assuming rising interest rates in 2017?

Since the end of last year, there has been talk of the Fed's intention to raise interest rates. I have adjusted my portfolio and investment strategy under the impression that rates will rise this year. However, the Fed has kept rates steady thus far and have been inconsistent in their goals. What are they waiting for? Should I hold steady and continue to invest as if rates will rise in the near future?

Investing, Asset Allocation
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February 2017

The conventional wisdom suggests as interest rates go up, bond prices go down. The issue is, we have no way of knowing how long interest rates will remain at current levels or more importantly, if the Federal Reserve’s actions will be give way to a more normal interest rate environment. If history is any indication of their ability to police interest rates, the chances aren’t good. Since 1980, we’ve seen rates ranging from the highs of 20% to lows of .5%. Given that large level of fluctuation, it’s hard to argue that they have the ability to hold sway over a normal environment through their actions.

The questions are a bit more relevant to your time horizon for using the funds. Knowing that all these things are uncertain, the best ways to potentially insulate yourself for the long term is by maintaining a consistent strategy from the beginning. Bond mutual funds or ETFs that have durations longer than 5 or 10 years are likely to fluctuate more during rising interest rate environments. The same holds true with those that have credit ratings below investment grade. Fixed income is an important asset class to the majority of portfolios, in most cases, as a vehicle to insulate you from equity market risk, which historically should provide a higher expected rate of return. Therefore, I’m a bigger advocate of long term investors assuming risk where historically, they have been more rewarded for it, and not taking on too much interest rate and credit quality risk with the fixed income part of their portfolios.

February 2017
February 2017
February 2017