WHAT GOES DOWN MUST COME UP

Managing your investment portfolio is not easy. It requires a constant awareness of market conditions such as the interest rate environment. It also requires an understanding of how a change in interest rates may affect performance of your investment strategies to be able to determine the possible reactions to any change in rates. Then, you have to be able to factor in any expenses related to making or failing to take action. Finally, you must decide upon and take the appropriate action -- which may be inaction if your current financial plan is working for you.

Other People’s Money. The Federal Reserve is the national bank of the United States. It controls the money supply and thereby affects the cost and availability of money: interest rates and available credit. The U.S. banks borrow money from the Federal Reserve to lend to their customers. The interest rate charged by the Federal Reserve is called the Discount Rate. The higher the Discount Rate, the less money banks are willing to borrow and push into the economy. If too little money is pushed into the economy, consumers and business may have less money to spend on goods and services.

Current Forecast? Rising Interest Rates. What goes down must come up. Interest rates just tend to work that way, which has many investors currently reevaluating their investment strategies. A good idea; but, don’t be too quick to make changes. Sure, rising interest rates can hurt some strategies. Other strategies; however, can aid you in managing the risks of rising interest rates, including a laddered bond portfolio. The goal is to identify the appropriate strategies for you.

Time Lines. Over time your financial goals, the amount of time you have to invest and your tolerance for risk will change and so will your financial plan. Today, most investors understand this and realize the value of diversifying their investment assets among stocks, bonds, and cash equivalents. Not only can you diversify across asset classes, you can diversify across investment strategies. The idea, bearing comprehensive financial planning in mind, is to combine and implement the appropriate strategies in the right proportion to insulate your investment portfolio from the impact of rising interest rates.

Investment planning strategies should never be implemented in a knowledge vacuum. Your financial advisor can help you learn how to diversify across investment strategies by choosing and implementing complementary strategies that balance risk and reward within your comprehensive financial plan.