The last few years we’ve seen historically low-interest rates and a rising concern over interest rate risk. These low rates have been great for borrows looking for low-cost loans. On the other side, it’s been tough on savers forced into short-term fixed income assets while they wait for rates to rise.
It’s not a great combination for those looking to invest in fixed income assets. All we can do is avoid or reduce the risks we take when dealing with changing interest rates. The best way to digest it all is to understand interest rate risk, its effect on different assets, and how to mange it all.
What Is Interest Rate Risk?
Interest rate risk is the risk inherent with loans, bonds and other interest bearing assets. It’s due to the movement in interest rates over time. The simple version is seen with bond prices and yields. As interest rates rise, bond prices fall and vice versa.
While bonds have a fixed interest rate, real interest rates are constantly changing. This is where interest rate risk presents itself. When rates move too much in one direction it has a significant impact on bond prices. Continue Reading…
One of the most popular investments in the past few years have been REITs, or real estate investment trusts. If you’ve ever been to an outlet mall, it was probably owned by a real estate investment trust. It’s just one way for investors to get into real estate without buying property.
Do you want to earn more than the current 5 year or 10 year Treasury bonds without giving up the safety they offer? Or maybe you just want a way to start saving without taking on the risks of the market. With treasury rates at all time lows, CD rates are a safe second option offering more flexibility and backed by the FDIC.
Tracking your investments is more than glancing at those monthly statements. A regular investment review needs to be done. Of course there are no set rules, just some basic guidelines to consider.