How Rising Interest Rates Can Affect Your Portfolio

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How Rising Interest Rates Can Affect Your
Portfolio

• Common Sense on Complex Issues

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Have you ever wondered about where all the change
comes from?

• Sometimes people see themselves as a gear in a
  never ending process. Things are interrelated and
  understanding how things connect can be a good
  thing.

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Interest rates, inflation and the worlds economy
are all connected

• People use money as a medium of exchange for
  goods and services. The cost of borrowing that
  money is generally dependent on how the people
  loaning the money out feel about their chances of
  seeing their money again. The sooner they see
  their money (principal) and a return on it
  (interest), the more likely they will loan it out
  for a better rate. The more people looking for
  loans the higher the cost of borrowing. It is in
  the governments best interest to have modest
  interest and modest inflation so that it can pay
  back what it owes with cheaper dollars down the
  road. Our government uses the Fed or Federal
  Reserve bank as one arm to control fiscal or
  monetary policy.

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Interest rates, inflation and the worlds economy
are all connected

• If the United States has a Strong Dollar
  policy, it buys more overseas. If our dollar
  weakens, it makes our products cost less for
  other countries to buy our products and their
  products cost more over here. If we consider the
  world one large shopping mall, many of the places
  to shop are not located in our country.

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Inflation

• Think of the cost of a postage stamp from the
  late 1950s or early 1960s. It cost around a
  nickel to mail a letter back then. What does it
  cost to mail the same letter today? It is not
  that it costs moreIt is that the dollar doesnt
  generally buy as much mail delivery, gasoline,
  bread, house, car as it did after inflation.

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Inflation

• In some areas, the prices for products and
  services seem to inflate more quickly like in
  education and health care. While in other sectors
  such as computers or phone calls
  (telecommunications) the costs seem to decrease
  due to efficiencies in production or technology.

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Inflation and Interest Rates

• So while the cost of the postage stamp may have
  risen 7 or 8 fold over 4 or 5 decades, the cost
  of the long distance phone call or a hand
  calculator has decreased multifold. The reason
  generally interest rise is the Government wanting
  to keep the economy from overheating so that it
  moves along at a steady clip. They do this by
  controlling what companies pay to borrow cash to
  expand their operations.

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The affects on your portfolio

• Ask anyone living on a fixed income what life is
  like when they have to make choices and they will
  tell you what is the definition of frustration.
• Rising interest rates and inflation are hidden
  costs on your money. They cripple your purchasing
  power and eat away at your savings.

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The affects on your portfolio

• If you have longer term bonds, both the current
  income and principal, you ultimately receive is
  worth less than you originally anticipated. It is
  sort of like having a ticking time bomb sitting
  in the middle of your plans.

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Rising Rates and Inflation

• Some people have traditionally looked at Real
  Estate and Physical Assets like Precious Metals
  as hedges to Inflation. They feel that owning
  something that will appreciate over time may be
  the best answer to the issue. A combination of
  these and ownership in a diverse portfolio of the
  finest businesses from around the globe have
  proven to be a better place to protect yourself
  for the long run. That is why people put their
  money in the stock market!

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There are many types of products out that may
help you fight inflation and rising rates

• Adjustable Rate Instruments
• World Dollar Denomination Bonds
• High Income (junk bond) Bonds
• Real Estate Investment Trusts
• Foreign Preferred Stocks
• Domestic Growth Stocks
• Master Limited Partnerships in Energy or Natural
  Resources.
• Precious Metals

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The world is getting to be a smaller place. Your
neighborhood is really the area you can get to
within 24 hours and today that is just about
anywhere. Opportunity abound for those willing to
stretch their imaginations and reframe the
contexts of their portfolios