Dealing with Rising Interest Rates
With interest rates still at historically
low levels and the economy picking up steam, the Fed has started
to raise interest rates. The question now is by how much and how
quickly the Fed will increase interest rates. The answer is especially
pertinent to bond investors who will find their bond values decreasing
as interest rates increase. But don't totally abandon bonds just
because their values may decrease in the near term. There are
still valid reasons to hold bonds in your portfolio.
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Managing Bond Risks
All investments are subject to risk, although
the types of risk each investment is subject to varies. Keep in mind that the assumption of risk
is generally rewarded with higher return potential. One of the
safest bond strategies is to only purchase three-month Treasury
bills, but this typically results in the lowest return. While you can't totally eliminate
these risks, you can develop strategies to reduce them. For bonds,
consider these strategies.
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A Checklist for Bond Investors
In order to help you pursue your long-term goals, investments in bonds should be tailored
to your investment objectives, risk tolerance, and other personal
circumstances. Answering some fundamental questions will help
you determine the role bonds should have in your portfolio.
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Keeping an Eye on the Yield Curve
A yield curve is a graph plotting interest
rates for the same type of bond for a series of maturities, typically
ranging from three months to over 25 years. Although yield curves
can be plotted for any type of bond, they are most commonly seen
for Treasury securities. Bond investors typically use yield curves
to help find a maturity that maximizes return at an acceptable
risk level. For instance, you may find increasing a bond's maturity
by a couple of years will increase return significantly or committing
funds for a long time does not bring much additional return.
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Selecting Beneficiaries
Many assets, including individual retirement
accounts (IRAs), life insurance policies, and annuities, can have
beneficiaries designated to receive the asset after your death.
Make these selections carefully, since they typically override
any provisions in your will. Consider the following points.
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David K. Sebastian, CFP®, and his team of experts at The Physicians Wealth Management Group specialize in working with individual physicians and group medical practices. David is considered to be one of the top financial advisors in the country with more than twenty five years of Wall Street experience as a chief investment officer, portfolio manager, institutional bond trader, and estate planning, benefits planning and retirement consultant.
Commitment to his clients’ financial needs and well being is a primary motivation for David.
The Physicians Wealth Management Group was specifically created to address and manage all of the unique financial challenges that doctors are facing both individually and through their group medical practices.
Feel free to contact me at
www.physicianswealth.com or
dsebastian@sfr1.com
or call me at (973) 285-3600
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