Page 39 - Flathead Beacon // 11.25.15

FINANCIAL CORNER JESSE RIGLER
HOW CAN THE FED’S WACTIONS AFFECT YOU?
HEN WILL THE FEDERAL your xed-income portfolio. Reserve raise interest rates?
This question has been on the Build a Bond Ladder
minds of economists and nancial mar- ket prognosticators for quite some time now. But what does it mean to you, as an individual investor?
First of all, it’s important to under- stand just what is meant by “raising rates.” The Federal Reserve, or the Fed, directly controls short-term interest rates, although, through various mea- sures, it can also a ect long-term rates. Typically, the Fed will lower short-term rates to stimulate the economy. Con- versely, the Fed will raise rates to slow down the economy if it seems to be “over- heating” and threatening to push in a- tion to excessive levels.
Since the end of 2008, when the nan- cial crisis hit, the Fed has kept short-term rates close to zero. But now, following several years of reasonably strong eco- nomic growth, the Fed appears poised to raise rates. No one can really predict the exact timing of the rate hike, but state- ments from the Fed indicate that it seems to be a matter of “when,” not “if.”
Federal Reserve Chair Janet Yellen has indicated that when the increase comes, it may be relatively small, and that further increases will be spaced out enough to avoid potential “shocks” to the economy. Still, as an investor, you need to be aware of the potential impact of any interest rate increase. So, consider the following:
Review Your Bond Holdings
As short-term rates rise, shorter-term bonds, and even some “cash” instru- ments, may eventually become more attractive than longer-term bonds, which tend to be more volatile. A sell-o of lon- ger-term bonds can push their prices downward, so make sure these bonds don’t take up too large a percentage of
A bond ladder may prove bene cial to you in all interest-rate environments. To construct this ladder, you need to own bonds and other xed-rate vehicles, such as certi cates of deposit (CDs) of varying maturities. Thus, when market interest rates are low, you’ll still have your longer-term bonds, which typi- cally pay higher rates than short-term bonds, working for you. And when inter- est rates rise, as may be the case soon, you can reinvest your maturing, short- term bonds and CDs at the higher rates. Be sure to evaluate whether the bonds or CDs held in the ladder are consistent with your investment objectives, risk tol- erance and nancial circumstances.
Be Prepared for Volatility
Certain segments of the nancial mar- kets don’t like interest rate increases – after all, higher rates mean higher bor- rowing costs, which make it harder for businesses to expand their operations. Therefore, depending on the composi- tion of your portfolio, be prepared for some volatility when rates start moving up. However, since the Fed has already indicated it is likely to raise rates fairly soon, such a hike may already be largely “priced in” to the market, so any turbu- lence may be somewhat muted.
By taking these steps, you can help contain the e ects of rising interest rates on your own investment outlook. Ulti- mately, as an investor, you need to con- centrate on those things you can con- trol, no matter what the Federal Reserve decides to do. And that means you need to build a diversi ed portfolio that re ects your goals, risk tolerance and time hori- zon. Maintaining this type of focus can help you – no matter where interest rates are headed.
FITNESS
FREE
Jesse Rigler is a nancial advisor at Edward Jones in Kalispell.
Join us for a FREE post-Thanksgiving workout at The Summit!
Open all day.
Also, come enjoy our BLACK FRIDAY SALE at the Summit at Home Pro Shop!
selected in-stock fitness equipment.
all Fall clothing.
Buy a $100 giftcard for $10 to be used for Summit registration fees only.
406.751-4100 www.summithealthcenter.com
40% off
FLOORS INSTALLED WITH PRIDE
So you’ll be proud!
Up to 70% off
Most homes with fresh wood ooring command a better resale price. Invest in quality.
Install Sand Finish or we rent professional ooring machines and have the commercial products and advice to help the do-it yourselfer.
Call to book your ooring upgrade today!
Larry Alton, Eagle Woodworking 755-4770 shop 212-8235 mobile
Decades of experience, hundreds of local happy customers.
NOVEMBER 25, 2015 // FLATHEADBEACON.COM
39