There is some talk (some, ha) that the Federal Reserve is on the brink of raising interest rates again soon, possibly even before the end of the year. Considering the fact that the year is almost half over as it is, that’s not much time before your bonds and other investments begin to lose value. This means your investment portfolio will suffer, and you will be left to pick up the pieces and find a way to re-work things so that you are capable of earning more money and adding value to your investments and portfolio. The big question isn’t so much when the Fed will raise the rates, though. It’s what you should do with your investments so that you are always in the best financial position. We have a few suggestions that might just help you out.
If you have a certain percentage of bond funds in your investment portfolio, considering rebalancing them so that you have fewer of them and take a lesser hit if the rate hike is significant. You can sell higher right now, profit from that and hopefully not lose so much when the rates go up. On the flip side, the rate hike might be very minimal and affect you in almost no manner.
It’s not a big secret that bonds with a longer maturity rate have more to gain, but they also have more to lose. Consider switching the terms on yours so that they are shorter and therefore less affected by the rate hikes that will occur.
Not always a popular choice, but for some it makes no difference. If you stay the course, you probably have plenty of time to recoup your losses and make money in the future. If you’re within 10 years of retirement, however, it’s a good idea to try and minimize your losses as much as possible.
If you make the decision to sell your bonds before they mature, you are taking a loss. However, you can easily do the math and see what kind of loss you are talking about before they lose their value even more. Sometimes the math makes more sense to sell now and lose minimally than to sell later and lose significantly.
The good news is that rates always drop, so there is a good chance that you will see them drop in the next decade or so. This means you might want to wait for this to happen if you’re not in any hurry to retire and sell then for a higher price.