David Fleer
Bristlecone Value Partners, LLC
12301 Wilshire Blvd., Suite 320
Los Angeles, CA 90025 USA
Work 1-877-806-4141

How Will Higher Interest Rates Impact my Portfolio?

June 18th, 2015

For some time now, most market observers (ourselves included) have expected that the Federal Reserve would eventually raise interest rates from their historically low levels.  In our estimation, monetary tightening was less a question of “if” than “when.” After all, an extended period of near-zero interest rates does as much harm as good (just ask any retiree living on a fixed income, or insurance companies and pension funds struggling to meet their projected liabilities).  Moreover, when you consider that the size of the Fed’s balance sheet—a reflection of the quantity of money created—is more than five times its pre-crisis level, it’s clear that at some point, all of this excess liquidity risks triggering higher inflation, an asset bubble, or both.

Although the precise timing is uncertain, recent comments from central bankers indicate that the Fed is likely to begin raising rates later this year.  The impact on your portfolio could be negligible or more significant, depending on the magnitude and pace of rate increases.  Looking at past cycles of monetary tightening offers the best clue as to how different assets in your portfolio may react to higher rates.    Read the rest of this entry »

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