How to prepare your portfolio as interest rates continue to rise


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After nearly eight months of market volatility, many investors are still concerned about rising interest rates and how those changes are affecting their portfolios.

About 88% of investors are concerned about rising inflation and interest rates, according to a study published Monday by JP Morgan Wealth Management, which surveyed more than 2,000 Americans, with oversamples of black and Hispanic investors.

The Federal Reserve made its second consecutive three-quarters percentage point rate hike in July, aiming to combat rising prices without triggering a recession. And the minutes of the meetings indicate that the Fed will not hesitate to make further hikes until inflation eases.

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While annual inflation rose 8.5% in July, a slower pace than in June, eyes are on Fed Chair Jerome Powell as he prepares to address colleagues in Jackson Hole, Wyoming this week.

With many anticipating additional rate hikes during the Fed’s fall meetings, advisers have shifted their portfolio recommendations as follows.

Consider value over growth stocks

As interest rates rise, Kyle Newell, a certified financial planner from Orlando, Florida and owner of Newell Wealth Management, has made some adjustments to client portfolios.

At this point, he prefers value stocks, which typically trade for less than the asset’s worth, over growth stocks, which are generally expected to provide above-average returns. Typically, value investors are looking for bargains: Undervalued companies are expected to appreciate in value over time.

“In general, if the cost of doing business goes up, that’s more damaging to growth companies,” says Newell, explaining how “much of the value is based on future projections.”

When the cost of doing business rises, it generally hurts growth companies more.

Kyle Newell

owner of Newell Wealth Management

Opt for shorter bond maturities

As market interest rates and bond prices move in opposite directions – meaning higher rates drive value down – Newell has also been proactive with bond allocations.

When compiling a bond portfolio, advisors take into account what is known as duration, which measures a bond’s sensitivity to changes in interest rates. Expressed in years, duration factors in the coupon, maturity and income paid during the lifetime.

In general, the longer the maturity of a bond, the more sensitive it will be to interest rate rises and the more its price will fall.

“I’d like to stick to the shorter end,” said Newell, explaining how a larger portfolio of individual bonds or exchange-traded funds with a specified maturity can provide more control.

Still, it’s impossible to predict exactly what will happen to inflation, the Fed, or the stock market, so it’s critical to have a well-diversified portfolio based on your risk tolerance and objectives.

“That’s the main thing I want people to remember,” Newell added.

The Valley Voice
The Valley Voice
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.


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