My advice to investors right now

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My advice to investors right now

Just like in March 2020, I have no idea how stocks and bonds will perform in the future. Indeed, as it has already announced it would, the  Federal Reserve will raise the key short-term federal funds rate. But that’s already factored into the valuation of stocks and bonds, and the federal bond rate is simply the overnight rate. Also, unlike 2020, there is now less of a need to rebalance as both stocks and bonds are down.

It might be sensible to make a couple of changes to the bonuses. If the intermediate and long-term interest rates continue to rise, the value of the bonds will continue to decline. In general, the longer the term of a bond, the greater the reduction in value when interest rates rise. But it would also be a mistake to assume that these medium- and long-term interest rates will continue to rise. There are two ways to protect yourself from the possibility of an increase in interest rates.

First, it is currently possible to securely obtain high rates with Series I bonds. These are inflation-protected savings bonds issued and guaranteed by the US Treasury Department. The link above explains how they work and how to buy them. The current six-month rate for Series I bonds purchased through October is 9.62%. This is not a printing error. The amount you can buy is limited. You can also buy something similar called Treasury Inflation-Protected Securities (TIPS), or TIPS funds. Where To Cash Savings Bonds?

Another option is to buy a short-term Treasury bond or note., which can be purchased through Treasury Direct or your broker. These are rare times when a short-term Treasury yields about the same as a very long-term Treasury. As of May 2, 2022, a two-year Treasury bond had a yield of 2.74%, not far below the 3.07% for a 30-year bond. If interest rates do rise, the long-term bond will be affected much more than the short-term investment. Treasuries are not only yielding more than a certificate of deposit, but the interest is also exempt from state taxes. I think this is an option for part of the bond portfolio. Still, don’t forsake high-quality bond funds, as it’s quite possible that rates will drop in scenarios, such as a recession.

Unlike previous stock market crashes, this correction requires less courage. You don’t necessarily have to sell your bonds to buy more shares, what I can assure you is an unpleasant feeling, to put it mildly. And you can safely earn a much higher return on bonds while taking on even less risk with Series I bonds, and a very good safe return on shorter-term Treasury notes.

Investing is a (very) long-term strategy. I’ve seen that people who constantly change their asset allocations and objectives often chase past returns and make fewer future gains. Following a plan is simple, but it is also very difficult to do. And, even though he’s also very harsh, he tries to ignore depressing investment-related news. Remember, neither good nor bad times last forever, and capitalism will survive.

Allan Roth is a practicing financial planner who has taught finance and behavioral finance at three universities and has written for national publications, including The Wall Street Journal. Despite his many credentials (Certified Financial Planner [CFP], Certified Public Accountant [CPA], Master of Business Administration [MBA]), he remains convinced that he can still keep investing simple. SEO by a digital solution 

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