I closed on my co-op in Brooklyn last Friday. There was still a mortgage payment outstanding, so that sum came out of the proceeds. The event made me think about that mortgage (it actually made me think about a lot of things) but that monthly payment to the bank was one of them.
When I first started paying my mortgage, the interest rate hovered in the double digits. After refinancing a couple of years later, it dropped to around 8 percent. Then I decided to take another whack at it and the monthly payout got reduced event further to 5 percent. I probably could have taken another whack at it in the past couple of years, but didn't.
Are times about to change? We've been at historic low interest rates for a few years now and the sense that rates will probably get higher – and, if so, when – are on everybody's radar screen.
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Last week, we ran a story about new data from Janus Capital Group. It found that among the 302 advisors it surveyed, more than nine out of 10 thought that rising interest rates were the basis of the most important conversation they needed to have with clients this year.
Now that the Federal Reserve is winding down its stimulus policy, it seems like a good time to hit up your research team for some talking points. This columnist doesn't pretend to be able to offer recommendations except for this one: when your institutional or retail client comes to you with that "Whaddya going to do for me now?" look on his or her face, you ought to have some original options in place.
More importantly, what are you going to tell your clients close to retirement? If most or all of their portfolio is in bonds, are you going to suggest they stay the course or get out before interest rates get any higher? If you suggest they get out, where are you going to put them: equities, alternatives?
And for those among you with clients who depend on interest or are still playing with equities, how do you see their strategy playing out? Do they reduce their stock holdings and sweep their winnings into bonds that offer higher yields? Are you going to suggest a bond ladder?
It's been pretty steady for the past couple of years. Unfortunately, that's over. You have a lot of research to get done in the next few weeks. Sorry I can't give you any solid solutions, except this: Time to get nimble quickly.
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