Preparing for Rising Interest Rates

A recent article in Advisor Perspectives addresses a number of issues related to rising interest rates and how investors can prepare for them.

Here are some highlights:

  • Yield curve outlook— The article argues that the potential for higher long-term interest rates is “still significantly greater than many forecasters would have you believe” due to the winding down of quantitative easing in Europe, inflation and rising federal budget deficits.
  • The fixed income investor, the article says, can position their portfolios by including floating rate senior bank loans and defined maturity ETFs.
  • There are potential benefits associated with bond ladders—a portfolio of bonds that mature at staggered intervals across a range of maturities.  If market interest rates fall or remain flat, fund holders can stay invested and take proceeds when the bonds mature. “By bond laddering with defined maturity ETFs,” the article explains, “investors can generate regular income through a diversified range of maturities while maintaining the liquidity offered by the ETF structure.”