Now that the Federal Reserve has finally begun raising interest rates after holding them at a record low near zero for the past seven year, Baton Rouge area investment experts say it’s time to take a fresh look at your portfolio to see how it may be affected.
An investor’s mix of stocks and bonds generally varies based on the investor’s age and risk tolerance. Because people are living longer, it might be a good idea for investors to be slightly more weighted toward equities than they might have been in the past, Jerry Goss of Goss Wealth Management tells Business Report in a feature from the new issue.
For example, a 50-year-old investor who might have had a 70/30 mix of equities and bonds 10 years ago might be at 75/25 today.
“Statistically, they may be around for 20 or 30 years [after retirement], so that’s still a long term,” he adds.
That doesn’t necessarily mean bonds should be abandoned, however.
“If you make the assumption that interest rates are going to go up, you’re still going to want to be in bonds, but you’re going to want to be in the right types of bonds,” Goss says.
In a rising interest rate environment, bonds that mature quickly might make more sense. Floating rate funds, in which the interest rate is adjusted every 90 days, are more favorable in a higher interest rate environment than in a lower rate environment, he says.
Jason Windham, president of the Shobe Financial Group, notes bonds aren’t really the growth side of your portfolio. They’re mostly in there because they’re less volatile than stocks. But bonds are not risk-free. When interest rates go up, he says, bond prices typically go down.
“So you kind of get double-whammied a little bit,” Windham says. “You’re getting low interest rates, and then the potential that if interest rates go up, the bond prices of those can go down.”
Simply holding more cash is another option. He also mentions bonds with a shorter maturity shelf-life, which are less price-volatile in the face of rising rates.
Read the full feature. Send your comments to editors@businessreport.com.
