Erickson Financial Solutions Blog
How to prepare for higher interest rates
Link to 1-minute video: How Do You Create a Simple Retirement Income Plan?
Rising Interest Rates
Lately, you may have noticed more articles in print, online, or tv about the quick rise in key rates in the last 18-months. No one knows whether they will continue appreciably further up, level off for a while, or even head back down. However, many feel rates will climb before they sink, so what can you do?
- Build a CD â€śladder.â€ť As interest rates rise, newer certificates of deposit will offer higher yields, and if you invest in CDs with a range of maturities, in particular less than two years, youâ€™ll be poised to act when rates move higher. You can reinvest the proceeds of CDs that mature into new CDs with better yields.
- Adjust bond fund allocations. Bonds function very much like CDs when it comes to their price. As rates go up, their prices generally fall. Placing more assets in shorter duration or maturity bonds or bond funds with allow the assets to reinvest in ever rising bond rates. Long-term bond funds are still worthy of purchase, but when rates are rising, skewing your holdings towards short duration or maturity bond funds may be superior while rates are climbing.
- Dividend paying Stocks. Currently many companies are increasing their dividend payout and this means greater return for your money from dividends. Companies who do not raise dividends may be looked as less favorably as their interest-like return is not keeping up with the market or inflation.
- Revise personal debt. If rates are going higher, lock in fixed rates. Further, pay debt that is going to raise its interest charges.
Interest rates present complex challenges. Please call and make an appointment so we can help you get into position for rising rates.
Note: Past performance of an investment or strategy is no guarantee of future returns.