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Why It’s Time to Review Your Bucket One

We would like to spend just a couple of minutes talking about current fixed interest rates. Now, we probably don’t have to tell you that interest rates have moved up a lot in 2022. News of the Fed raising rates has been all over the financial news since March when they started the process. What people don’t recognize, though, is exactly how high rates have gotten. Here’s a little snapshot of some rates you might be interested in.

The 2 Year Treasury is over 4%. We haven’t had that in 15 years. It was 2007 when the 2 Year Treasury was last over 4%. And what’s really interesting, you don’t even have to go out two years to get that 4% rate. Six-month Treasury bills have been paying 4% or more in recent months. So interest rates are up dramatically. Now, most of the information we’ve been hearing about rising interest rates in 2022 have understandably talked about the negative impacts of rising rates.

Rising rates are a reflection of fighting inflation, which is a reflection of uncertainty which has hurt the stock market this year. If you know about interest rate risk, then you probably know generally as rates rise, bond values fall. And that’s a reflection of what’s hurt the bond market this year.

But we don’t want to focus on negative stuff today, but instead focus on the silver lining that’s available with current interest rates. 

Again, most of the people we talk to have managed interest rate risk over the years by doing a few different things. Maybe they’ve held on to more cash than they normally would. That’s typical in bucket one. Maybe they’ve held on to stable value funds inside of 401(k) plans or other types of retirement plans. Those funds have been paying 1 to 2% in recent years. They don’t have any interest rate risk, so they may have done a great job for you in recent years. Or, maybe even you have old fixed annuities that are out of surrender and those, too, have been paying somewhere between that 1 to 3% type rate in recent years, but have avoided interest rate risk this year. Those may have done their job. 

Now may be a great time to review the most conservative portions of your portfolio and perhaps take advantage of some of these higher interest rates that are available today. As always, we at Lucia Capital Group, are here to help. 

Important Information:

The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy will be profitable for a client's or prospective client's portfolio, thus, investments may result in a loss of principal.

You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.

It is important to keep in mind that investments in fixed income products are subject to liquidity risk, interest rate risk, financial risk, inflation risk and special tax liabilities.

Treasury securities are backed by full faith and credit of the U. S. Government but are subject to inflation risk.

Before investing, carefully consider a stable value fund’s investment objectives, risks, charges, and expenses. To obtain a prospectus or summary prospectus, which contains this and other information, call your financial advisor. Read the prospectus carefully before investing.

Annuities are long-term investment products designed for retirement purposes. Guarantees are based on the claims-paying ability of the issuer subject to their terms and conditions. Certain terms and conditions apply, so please read insurance company materials carefully.

Insurance services offered through LPL Financial or its licensed affiliates. CA Insurance Lic. #0518721

Chris Lloyd is a registered representative with, and securities and advisory services offered through LPL Financial, a registered investment advisor and member FINRA/SIPC. The investment professionals are affiliated with LPL Financial and are conducting business using the name Lucia Capital Group, a separate entity from LPL Financial.

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