6 Tips to Success in a Low Interest Environment

Low Interest Rates Call For Portfolio Adjustment

The Federal Reserve chair Jerome Powell announced a major policy shift in June of 2020. The bank will no longer preemptively raise interest rates to starve out inflation. In plain English, this means rates are going to remain low for a long time. When questioned about raising interest rates Jerome said, "We're not even thinking about thinking about raising rates." This change has profound, adverse implications for savers and fixed income investors.

6 Tips to Success in a Low Interest Rate Environment

  1. Refinance Your Mortgage

This is an excellent time to take advantage of low rates and refinance any mortgages. The 30-year mortgage rates are hitting all-time lows, below 3%. You could even refinance into a 15-year mortgage in some cases and still pay less monthly. With inflation on the rise, it is wise to hold extra cash on hand or reinvesting the savings.

  1. Consider an Adjustable Rate Mortgage

Interest rates will remain low for many years. Most adjustable rate mortgages offer a far lower rate than fixed rates. It may be time to take advantage.

  1. Get Your Certificates of Deposits in Order

CD interest yields have dropped to historic lows month after month. Be sure to use free services like Bankrate that show the highest CD rates in the country. If you continue to invest in CDs that you ladder your portfolio and stagger the certificate’s maturities. You best bet is to find alternatives as rates are expected to remain low for a long time.

  1. Indexed Mutual Funds and ETFs

Indexed mutual funds and ETFs have very low management fees. The Fed uses its targeted rates to promote economic growth. This encourages investors to buy into the stock market. However, recent market volatility indicates that the economy’s near-term forecast remains quite murky. 

  1. Invest In Gold

Investors who fear inflation invest in gold and other hard assets as a hedge to protect their buying power. After witnessing the change in the Fed’s policy, it is no wonder that gold prices have hit new all-time highs in 2020. We continue to believe that gold is a core risk management tool. Not only can investments in gold be viewed as a tactical reaction to market volatility, but gold is a strategic, long-term hold. In high times and in low, gold has unique investment properties that make it a component of a well-balanced investment portfolio.

  1. Don't Be Afraid of Alternatives

Private credit funds, hard money funds, real estate and hedge funds are all alternative investments. Do not be afraid when they are suggested but investigate risk management processes, speak to current investors and understand the nature of your investment. These investments when chosen wisely could substantially outpace the returns of CDs.

(Disclaimer: The use of this website does not constitute the rendering of financial advice by the author to the reader. It is solely for informational purposes. The author is not a financial advisor and has no affiliation with links provided in the article. Please visit the privacy policy for a full list of disclosures. ) 

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