What should you do now that the Fed has raised rates again?

In mid-December, the Federal Reserve raised interest rates again, contributing to some of the whipsaw volatility we saw at the end of the year. As an investor, you may be wondering what you should do now. Consider these three things: Review your portfolio Does your asset allocation still match your time horizon, risk tolerance, and investment goals? If so, you might consider leaving things unchanged. It might not sound like a special strategy, but most people miss out on the long-term gains of the market by making moves at the wrong time. Keep on keeping on There will probably be more volatility in store. Embrace it. The S&P 500 stock index has become more turbulent in 12 of the last 14 tightening cycles, including this one. But that shouldn’t mean a whole lot to a long-term investor. Ride the market’s ups and downs, and you could be rewarded for your patience. Diversify Treasury bonds are most sensitive to movements in interest rates. As an alternative form of fixed income investment, consider high-quality trade finance investments and sukuk, both of which offer liquidity and diversification benefits in a rising rate environment. And for some serious diversification, it’s hard to beat participation

January 4, 2019 No Comments

How the Fed impacts your portfolio

Since September of last year, the Federal Reserve has been buying $85 billion in bonds every month, aiming to lower long-term interest rates and boost economic growth. Overall, the U.S. central bank has bought more than $2 trillion of government bonds, private debts, agency housing debts and other bond instruments dating back to the Financial Crisis. It has paid for these purchases by crediting funds to the reserves of private banks, which is commonly referred to as “money printing.” Liquidity trap The Fed began printing money because, in its view, the crisis plunged the country into a “liquidity trap,” a situation in which many people hoard cash due to uncertainty and the lack of good options for a decent return. America spent most of the 1930s in a liquidity trap; Japan has been in one since the mid-1990s; and the Fed is operating as if the U.S. is in one now. Economists who study liquidity traps, including Fed Chairman Ben Bernanke, argue that some of the usual rules of economics don’t apply as long as the trap lasts. Budget deficits, for example, do not drive up interest rates in a liquidity trap, and printing money does not have the same inflationary

June 11, 2013 No Comments