Financial Advisor to clergy and religious educators 

Strategies For Rising Interest Rates

The past four years, with its constantly lowering interest rates, has been great news for your fixed income portfolio. But now that interest rates are going up, you're losing money. There are several investment strategies you can consider to take advantage of rising interest rates.

If you're invested in a bond fund with a long maturity (over 10 years), you're losing substantially more money than being in a fund with a short duration. Consider mov ing your funds to a short term (5-7 years) or ultra short-term (less than 5 years) bond fund. When interest rates increase, bond prices fall. The longer the maturity, the bigger the fall.

A higher-yielding alternative can be a floating-rate loan fund. These funds currently offer a higher yield than ultra-short bond funds. Although a floating rate loan fund comes with a higher credit risk, they can provide a comparable level of protection against rising rates. These funds invest in adjustable-rate commercial loans issued by banks to below-investment-grade corporations needing short-term financing (think United Airlines, Goodyear Tire & Rubber, Levi Strauss). These corporations are struggling - hence the higher credit risk. Since these funds diversify across many types of companies and industries, this credit risk is lessened. The yields on these loans are adjusted periodically to mirror any changes in market interest rates.

Stable value funds are designed to keep a constant net asset value. They do this through what is called an insurance agreement "wrapper". The wrapper gives the fund money to redeem shares at a constant

price even if rising interest rates has eroded the value of the bonds in the mutual fund portfolio. The wrapper only pledges to maintain a steady net asset value and does not guarantee against losses from credit-related issues. This safety and higher yield comes with a price; early withdrawal fees and slightly higher operating expenses. Another investment choice is in what is called hard assets; i.e., energy, metals, real estate, natural resources. As the economy grows and interest rates rise, these commodities tend to do well. Alone, they are pretty risky. Combined judiciously with your portfolio, they can reduce your overall risk (the 'magic' of diversification). Invest in these types of assets either through mutual funds or through ETF's (exchange-traded funds). TIPS (Treasury Inflation Protected Securities) are issued by the government and their interest rate is adjusted every six months. Although currently priced at a premium, they are still a very viable choice; purchase them through a mutual fund. As with any investment, read the prospectus and check with your advisor about their suitability for you.


Are you saving enough for retirement? If not, do you know what to do to reach your goal? Are you taking on more investment risk than necessary? Is your greatest financial asset (not your home) properly insured? Are you satisfied with the value, service and attention that you're receiving from your advisor? If not, call for a complimentary review of your financial situation.

Dresner Financial Planning Dresner@clergyplanning.com
2359 Salisbury Road Westbury, NY 11590
(888) 200-9670
Back to index