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.
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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.