Last month, the Federal Open Market Committee raised the fed funds rate a quarter point to a range of 1.50% to 1.75%. It is the first hike this year and the sixth since 2015 when the Fed began reversing the accommodative measures implemented in the wake of 2008’s “Great Recession.” Even though bond prices decline as interest rates increase, there is a quantum of solace.
Uncertainty is a constant in investing. Rather than hope for portfolio gymnastics to deal with unforeseen events, sensible investors rely on diversification and discipline. In so doing, they distinguish themselves from speculators and, we’d argue, not only enjoy a higher probability of success but a better quality of life, as well.
Despite rekindled fears over rising interest rates, higher yields are a positive development for long-term investors.
Do negative interest rates abroad penalize U.S. investors who hold international bonds? Not necessarily. Investors who hedge currency exposure enjoy a smoother ride while also counterbalancing the effects from negative foreign bond yields.
When it comes to sports, an expanding talent pool and enhanced training techniques have caused the competition to become more fierce. However, in the world of investments, better tools and skills have little to do with performance.