When will the Fed Raise Rates?
There has been a great deal of speculation regarding when the Federal Reserve Board (Fed) will raise interest rates. The average guess from the financial guru's initially called for a rate hike as early as this month. However that has now shifted to September or even holding off until next year. Essentially no one knows when it will happen, but whether you are a "Hawk" or a "Dove", an interest rate hike means only one thing. The economy is finally healthy once again.
For a detailed explanation of what an interest rate hike means you can find out more by clicking HERE
What does this mean for you?
As a globally diversified investor, an interest rate hike is not the end of the road. Without a doubt, an interest rate hike will impact everyone. Credit cards, private student loans, stocks, bonds, car loans, and even those looking to purcahse homes, will be affected. However, those that will be affected the most are those who are subject to variable interest rates. Mortgages with variable rates and especially long-term bond holders. Through your investment portfolio, you are already in a good position to withstand the effects of an interest rate hike.
For one, you aren't exposed 100% to US equities and bonds. Therefore a potential correction in US asset proces, won't affect your entire portfolio. Also you are not heavily invested in long-term bonds, which could see diminished returns when the interest rate is eventually raised. In accordance with Efficient Market Theory, we recognize that the price of an asset encompasses all available and known information. Therefore, the price of equities already reflect the inevitability of an interest rate hike. The markets know that higher rates are coming, the trick is, no one knows exactly when, how much rates will rise, or how quickly additional rate hikes could follow. This is why we diversify globally and rebalance, to minimize risk when unknown or unpredictable events occur.
Lastly, you are a long-term investor. You know that the stock market goes up and goes down. You also know that the historical trend has been up. The bottom line is, as long as you stay the course towards your financial goals, this first interest rate hike in almost 10 years will look like it never was that big of a deal in the first place.