Nov 08 2023 27 mins 1
Laura Stover, RFC® is discussing the recent decision by the Federal Reserve to leave interest rates unchanged and the potential implications for retirees and investors. We will also explore the ongoing efforts by the Fed to combat inflation and the impact it may have on the economy.
The Federal Reserve recently announced that it would be keeping interest rates unchanged at its October meeting. While the market initially responded favorably to this decision, there is still uncertainty about the possibility of rate hikes in the future. The Fed will meet again in December, and if inflation remains high, there is a chance that rates may be raised.
This week’s featured article from The Washington Post titled "The Fed is Still Pushing to Get Inflation Down. Do People Feel it?" highlights the ongoing efforts by the Federal Reserve to control inflation. The Fed has been raising interest rates in an attempt to cool down an overheating economy and bring inflation back to its target of 2%. However, there is still uncertainty about whether these measures will be effective.
Fed Chair Powell acknowledges that there's still some mystery surrounding the matter.
The decision to raise interest rates can have significant implications for retirees and investors. Bonds, which are often a key component of retirement portfolios, are particularly sensitive to interest rate changes. When rates increase, the prices of existing bonds decline, as new bonds with higher interest rate payments become more appealing to investors.
Bonds are having their own 2008. That doesn't mean you throw the baby out with the bathwater, as they say. Stocks really didn't do all that well last year either. And stocks are starting to come back again led by that magnificent seven.
In light of the current market conditions and the potential impact of rising interest rates, it is crucial for retirees and investors to have a well-diversified portfolio and a risk management strategy in place. Traditional 60/40 portfolios may not be sufficient in navigating these complex market conditions.
You have to have stop loss indicators that are designed with a goal to mitigate downside risk and remove that emotion from the investing process. Your static 60/40 portfolio doesn't do that. Your target date fund doesn't do that. Your 401K, your 403b, many of your mutual funds are not actively managed with those types of algorithms and proprietary intellectual property with rules to help navigate through different market cycles.
When planning for retirement, it is essential to have a comprehensive income plan that takes into account the potential impact of interest rates and inflation. Relying solely on interest rates for generating income may not be sufficient. It is important to explore alternative options such as structured notes, index CDs, and annuities that can provide income guarantees and potentially higher returns.
We are making our world-class CPA’s available to you, even at this busy time of year. You can call LS Wealth at 419-633-0955 or go to redefiningwealth.info.
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