Rising interest rates !

The US interest rates are about to rise, the first time since 2006. They  are about to rise very soon , and as a result the cost of borrowing goes up in simple terms, but its affects are much broader. We can discuss so much about this topic,  but let’s just focus on our investments and bond  portfolios in particular which is what we really care about. The bonds / bond funds  in your portfolio  will take a hit with the rate hike. When the rates start to rise it’s going to be a very prolonged spanning several years and your bond returns will suffer severely. If you think you’re in bond funds not in any individual bonds, you’re mistaken  because the underlying instruments in your fixed income funds are nothing but bonds, be it US Treasury’s, corporate bonds etc. Look for any fund in your 401k / IRA etc that says “ income, bond, fixed

income etc “ as it indicates fixed income investments and obviously is filled with some kind of bonds. Also, the sectors that would be affected with the rate hike are utilities, Master limited partnerships, Real estate investment trusts, basically any business that has to borrow substantially.  This could also impact equities to a varying degree but strong businesses with limited borrowing needs should be relatively safe.  The long bull market in bonds that started in 1981 is coming to an end after a nearly 35 year solid run and it’s time to realize this massive shift in the investment landscape  . I’m sure we’re going to hear from some people a year from now and beyond for instance, as to how much their portfolios suffered,

and one of the possible reasons could be lurking in bonds in whatever form. Just take time to look at your portfolios closely,  each fund management  uses its own terminology in naming the portfolios.

 

The bottom line is, run away from bonds if you haven’t yet already before the rate hike  kicks in.