You ’ ll always want to base your investment decisions on your own needs and goals . But there may be times when you might consider adjusting your portfolio because of risks and opportunities . Now may be one of those times .
Here ’ s some background : In recent months , the Federal Reserve has raised short-term interest rates several times , and given its generally favorable outlook on the economy , it has indicated it may continue bumping up interest rates gradually over the next year or so . The Fed doesn ’ t control longterm interest rates , but these rates often follow the lead of short-term movements . However , longer-term rates haven ’ t yet risen as much as shorter-term ones , which means the difference between short- and longterm rates is relatively small , historically speaking .
This doesn ’ t mean you should make drastic changes to your portfolio . You still need to stick with the asset allocation that ’ s suitable for your situation , which typically involves owning a certain percentage of growth-oriented vehicles , such as stocks , and a certain percentage of fixed-income securities , such as bonds . However , if you do have space in the fixed-income part of your portfolio , you may find the higher interest rates offered by short-term bonds and certificates of deposit ( CDs ) to be attractive . To take advantage of this opportunity , though , you will need to have the cash available to invest .
Some people hold too much in cash , waiting for interest rates to rise , or as protection against the risk of a market decline . But holding excess cash involves its own risk – the risk of not investing . So , if you have your cash needs covered , you may want to consider investing any excess cash .
To determine if you are holding excess cash , you ’ ll need to review your entire cash situation . For example , do you have enough cash , or cash equivalents , to create an emergency fund of three to six months ’ worth of living expenses ? This fund can be vital in helping you pay for things like a major car repair or an unexpected medical bill without dipping in to your long-term investments . And , of course , you need enough liquidity to provide for your lifestyle , including your regular spending needs – your mortgage , utilities , groceries and so on . Also , you may want to set aside enough cash for a goal you want to reach in the next year or so , such as a vacation .
But if you have taken care of all these needs and you still have excess cash , you may want to consider putting this cash to work , possibly by investing in short-term fixed-income vehicles now being issued at higher interest rates .
And keep in mind that regardless of where interest rates are going , bonds and other fixed-income investments can offer some key benefits to investors . In addition to providing a source of regular income , these types of investments can help reduce the effects of volatility on your portfolio . While bonds can , and will , fluctuate in value , they typically can provide more stability to your portfolio and tend to behave differently than stocks over time .
After years of historical lows , shorterterm rates now have risen to levels that are more attractive to investors . Take the time to review your situation , perhaps with the help of a financial professional , to deter-mine if taking advantage of these rates may be appropriate for you .
Edward Jones Investments 1500 Beach Blvd . Ste 223
Jacksonville Beach , FL 32250 Office : 904-595-5955
Cell : 904-254-0406 matt . vallez @ edwardjones . com
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