With Interest Rates Expected to Rise Any Time, Your Portfolio Strategy for 2015 Should Be Defined by a Longer Term Outlook

The stock market is one of the most lucrative forms of investment.  It is especially good for creating wealth for your retirement as stocks tend to yield more benefits as a long term investment.

Investing in stocks or bonds is influenced by market lending rates.  Bonds devalue due to low interest rates as they are a fixed investment.  To encourage lending after the market crash of 2008, the Federal Reserve lowered lending rates, the reason being that if more people and businesses borrow, it might get the economy back on a growth track.

This decision (known as quantitative easing) has had an effect on investor decisions to buy stocks or fixed assets such as bonds and treasuries.

Fixed assets should form part of your investment portfolio when interests are high.  This is because they allow you to securely invest your retirement money so that you get a stable income when you need it in the future.  Therefore, when interests are low, that income is destabilized.

The reverse is true for stocks; a low interest environment makes the stock market thrive.  Due to low interest, the stock market has been bullish for a couple of years, with a lot of growth experienced into the early months of 2015.

 

Will the Market Remain Bullish?

This bullish trend is expected to continue as long as interest rates remain low.  The Federal Reserve could raise interest rates, and has in fact been hinting at it, though it largely maintains that until the US economy starts to experience sustainable growth, interest rates will remain low.

 

What Should You Do if Interest Rates Rise?

If interest rates rise, the stock market will go into correction in the short term, thereby interrupting the uptrend that has been so far experienced.  The Federal Reserve can, however, not afford to raise interest rates too high as this will take the economy back into recession.

Interest rates will therefore be eased back up in a moderated manner.  However, as the interest rate hike has been long expected, it is likely that any impact arising from stock correction will be absorbed, and if corporate earnings stay positive, the bull market will continue.

 

Your Strategy Should Be Long Term

Boosting your investment portfolio should not be reliant on bear or bull markets as you can never accurately tell how the market will turn out, especially in the short term.

As such, your strategy should be to buy reliable stocks from a reliable company that will still experience growth in the long term even after the market comes out of correction or if at worst, the market goes bearish for a while.

You have to analyze the stocks you want to invest in and decide if they meet the required parameters.  You can do so with the below two methods:

Technical Analysis

Look at past stock price performance and use that to predict how the stocks are likely to perform in the future.

Fundamental Analysis

This involves trying to understand the company to determine its financial health, management stability and outlook.  Learning about a company will give you confidence to invest in it.

 

Bottom Line

Deciding where to take your portfolio in 2015 is a decision that you should make with solid facts in mind.  If you have chosen the right stocks based on objective analysis, you will avoid being reactionary and dumping your stocks in a panic.

Click Here to Leave a Comment Below 3 comments
Nick @ Millionaires Giving Money - May 20, 2015

I think interest rates will rise but it will take another 18 – 20 months and the rate at which it rises will be miniscule. I think we’re entering a period of low rates until there is confident growth in the economy.

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Andy Brown - May 26, 2015

It is always difficult if interest rates rise because most of the people are living their lives with the burden of debt. But thanks to your article you have nicely explained what should do if interest rates rise. I am always in search of such informative articles and your article is one of them. This information will surely helpful for every individual. After rising of interest rates what strategies should be implemented is an important issue and you have nicely given a solution of this problem. More information is available on the internet where debt consolidation reviews are available to give more about that. Nice post!!!!

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Sujain Thomas - May 27, 2015

This article shares the information about rise of interest rates and the portfolio strategy should be defined by longer term outlook. All the points in the article are mandatory to know and are very nicely explained. Keep sharing your knowledge with the help of these articles. I am satisfied with your point that your strategy should be long term because it will always give a chance to change the plan before reaching to extreme condition. With the help of debt consolidation reviews you can make portfolio strategy for 2015 with longer term outlook. Thank you for posting this article due to which I had got to know about portfolio strategies very well. Well done.

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