Presented by the Hardee Investment Group and RBC Wealth Management –
It seems that all we’ve been hearing for the last two years is that the Federal Reserve is going to raise rates. It reminds me of the story of the little boy who cried, “Wolf!” Well, the wolf may really be here.
What does this mean to my portfolio, and how did we get here? The root of this zero rate interest policy can be traced back to the financial crisis of 2008-2009. With the bankruptcies of GM, AIG and Lehman Brothers, to name a few, the Federal Reserve cut rates to zero in an effort to stimulate the economy. This forced “savers” who had money in CDs and money markets to change their investment habits, because to remain there earned them zero. Therefore, they had to take more risk to make money. That meant more stocks and longer maturities on bonds. Seven years later, many investors have more volatility in their portfolios. The balance between stocks, bonds and cash has been seriously altered because of this zero rate policy.
What do we do now? Everyone has been chasing yield in the search for income. Rising interest rates will finally benefit savers and penalize borrowers. Many retirees have been savers and chasing yield. Look at your bond portfolios and understand what you own. Rising rates will depress bond prices. It could hurt slow-growth industries and housing. The United States dollar should strengthen, which will hurt multi-national U.S. companies’ sales. Faster growing stocks will be rewarded. Many portfolios are not positioned for this.
There are many other effects of rising rates. Do you know what they are? We do. Let Will or Heather review your portfolio to see what effect it may have on you.
This article provided by H. H. “Will” Hardee, AWM of the Hardee Investment Group and a Managing Director – Financial Advisor at RBC Wealth Management in Houston, and was prepared by or in cooperation with RBC Wealth Management. The information included in this article is not intended to be used as the primary basis for making investment decisions nor should it be construed as a recommendation to buy or sell any specific security. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance. RBC Wealth Management does not provide tax or legal advice. RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.