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4 Reasons Rising Interest Rates Aren’t Necessarily a Bad Thing

Posted by Seton McAndrews | CFP®, Vice President Investments

August 13, 2013


In our recent post on interest rates, we reviewed Federal Reserve policy and explained how future Fed actions may cause interest rates to rise. Some fear that with the Fed gradually taking their “foot off the gas” by reducing the current quantitative easing program, the economy could feel some negative effects. But the question we ask is: Could gradually rising interest rates actually be a good thing for the economy and your portfolio? Here are four reasons it might.

 

Reason 1: Rising Interest Rates as a Vote of Confidence

In Wealth Manager Tom Wilson’s recent piece titled “Preparing Your Portfolio for Rising Interest Rates,” he mentions that the Fed’s reductions or elimination of quantitative easing would be a sign of an improving economy. This could reflect itself in rising stock prices, which could be a benefit to portfolios.  

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Rising Interest Rates Retirement Income Strategy

Rising Interest Rates? How We Got Here

July 29, 2013
In response to the 2008-2009 financial crisis and global recession, the Federal Reserve (Fed) and other central banks across the world lowered interest rates and implemented asset purchase programs meant to drive down borrowing costs for banks and consumers. What is the Federal Reserve Trying to Accomplish? It works in two ways. First, by lowering short-term interest rates, the Fed and other central banks give traditional banks easier access to cheap capital, which policymakers hope will spur economic activity by increasing the amount of loans banks make to businesses and consumers. Second, the asset purchase programs, which are referred to here in the US1 as “quantitative easing,” has the Fed currently purchasing $85 billion per month of securities - divided between mortgage-backed securities and Treasury securities.i This serves two main purposes: [+] Read More
Preparing Your Portfolio for Rising Interest Rates

Preparing Your Portfolio for Rising Interest Rates

July 10, 2013
Interest rates are still at historically low levels, but recent statements about quantitative easing from Federal Reserve Chairman Ben Bernanke have put the prospect of rising interest rates front and center. Many investors are now asking - how do I prepare my portfolio for the possibility of rising interest rates? First, it’s important to understand that reducing or eliminating quantitative easing is a sign of an improving economy. Second, investors should look at how different fixed income sectors can be more or less susceptible to a rise in interest rates. And finally, investors should review their portfolios with their wealth manager, specifically the fixed income portfolio, and make adjustments as needed. [+] Read More
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Gabriel Burczyk
Founder & CEO
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Valerie De Vol, IACCP®
Chief Operating Officer
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Seton McAndrews, CFP® 
Vice President - Investments
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Katie O'Connor,
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