ModernWealthConcepts LLC

Now that rates have gone up what’s next?

The Federal Reserve's announced a quarter of a point rate hike last week.  Finally! This has to be the most telegraphed rate hike in history. Now that rates have gone up a little, what's next? New projections show that central bankers expect three more rate hikes for 2017. This is good news for fixed income investors because low interest rates are good for just about everybody except for people who make money by lending money. As rates rise, income investors should be able to roll over their boring, low interest bonds and certificates of deposit at higher rates as they mature. No problem there but, rates have been so low for so long that income seekers have, in some cases, become much more adventurous in search of yield than they may realize.  If rates go up only a little as expected, they will probably be okay. However, if rates go up more than expected, that could be a problem. Rising rates will eventually test those high income strategies that have been aggressively marketed to conservative income investors.  Many of these models may work well in a stable interest rate environment.  However, in a rising rate environment those models will be put to the test.  There is an old saying, "you never know who is swimming naked until the tide goes out".  Simple, understandable, income strategies, thoughtfully executed tend to work best during stressful times.