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How Will Higher Interest Rates Affect Your Investments?
The US Federal Reserve Open Market Committee raised interest rates again last week by a quarter of a percent. How will higher interest rates affect your investments? There are several ways that that higher rates will affect your portfolio both immediately and over the long term. Here are a few thoughts on the subject.
Immediate Effects of Higher Interest Rates on Your Investments
U.S. Treasuries and Corporate Bonds
If you currently have U.S Treasuries, AA, or AAA corporate bonds in your investment portfolio, they just became a little less valuable when the Fed raised rates last week. And, if the Federal Reserve follows through with its projections and raises rates twice next year, these investment vehicles will become progressively less valuable. However, if you simply hold your bonds or Treasuries to maturity, you will not lose money on these investments. And, if you wait for higher rates, you will be able to purchase these bonds and treasuries and earn higher interest rates. Ideally, you will buy these when rates peak. Then you will be earning a good interest rate and your bonds or treasuries will become more valuable as rates start to fall.