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Below is a transcription of the Ask Gregory Podcast 80 – How Will Rising Interest Rates Affect Investors?
Gregory Ricks 00:01
Hey welcome. I’m your host Gregory Ricks a financial advisor here to answer your questions and help you win with your money.
Podcast Intro / Outro 00:11
On today’s episode of the Ask Gregory Podcast, we’re going to answer the question, How will rising interest rates affect my investments? Joining us for this episode is Nicholas Rohde, a wealth advisor here at Gregory Ricks & Associates. We also have a complimentary download waiting for you on this topic if you go to gregoryricks.com/podcast80 at that is gregoryricks.com/podcast80
Gregory Ricks 00:34
You know one of the things that’s also been impacting investors are bonds, you know, the seesaw, they’re of interest rates moving up. And bond values moving down. So you know, bonds for the past 30 years have been in a different world where interest rates go go down for past few decades, and so been values were going up. So kind of like a bull run. I think we have some reversal of that for the next couple years. I won’t predict beyond that. Because I believe we’re in a world where they’re just not going to push interest rates up too much. Now I’m all on on the side of I think the markets should control interest rates versus the Fed let the markets dictate the flow of that, and the market is going to want to push interest rates up, I see how this looks here. So we’re at 10 year treasury of 2.904. So we add a point 01 for yield change. Here’s where I think normalization looks a lot better. And I think I like to be in a world where we’re kind of at a 3% 10 year treasury. I don’t know where they push it to but the Fed rate they they raised, but are they going to push it up a lot? No, because they might turn have to give it back. Because if they don’t get to some normalization. But in essence, you also on 10 years you have the market actually is adjusting that from where it was recently. Other part of the conversation, let’s see, where are we at, we just look at the one year there, we’re kind of one year ago, we’re essentially at 1.64. And we’re at 2.9. So we’re not far from having double that rate, if we looked at say, August of last year is at 1.1. And now we’re at 2.9. So if we look at three years, you know, three years ago, we were at a 2.54. So I’d like us being right there at about 3%. I don’t know how much further up, it will go. And it may go up some more. But once again, we’re a leveraged world, everybody lives on borrowed money, or you leveraged money to buy your house, you probably leveraged and stuff with credit cards. And consumers built on borrowing short term money as well, oh, our government lives on borrowed money, and they’re not going to want to pay a lot of interest rates as well. So I you know, after World War Two, pre World War Two, we were a society of we just pay for everything as we go, if you don’t have the money, you didn’t get it. And then we became a leverage society after that with low interest rates. And I think that’s part of where there is almost so much tolerance for the upside of that. So with that said, Your I believe here’s how I believe Porsche portfolios are best balance from asset classes. I think you should hold some stocks. Knowing those things move around and they upset people. Because every couple years, we get a 10% correction every decade we get a 20% or more correction in some times and it’s not a lot, but we get a 30% or more correction in there. So what’s problematic I think it’s problematic if you put all of your money in stocks, and stock selection can can be rough. You could be a big Disney fan, but they’re off like 25% this year. Just they’ve kind of become a little unpopular. Play Netflix has been a tremendous investment the past decade. But lately, it’s taken a hit. Yeah, it’s there.
Nicholas Rohde 05:09
So 22, it’s down 64%,
Gregory Ricks 05:13
you are building your own portfolio and do and stock buying. You know, you might say you have 50 stocks. And if two of those are in there, yeah, ouch. That hurt, hurt your portfolio. And one thing we find his history also tells us and that was Pindaric Besam binder. I believe he’s a professor of finance. But he wrote this research piece a few years back, and basically do stocks outperform treasury bills. And what his research found is most stocks do not outperform 30 day treasury so but his research also found that using indexes, skews a higher return. So with that said, I leaned towards that as as a tremendous foundation in philosophy of you know, you shouldn’t have all money in stocks. And and if you’re stock picking, are you going to be diversified enough? Have you pick the right ones? And do you have the momentum stocks? Meaning what’s in favor? Remember, everything rotates? There? So are you going to be in a situation where you get hurt? And are you investing in a way that you are going to emotionally interrupt the compounding of your money? That worries me? So if you’re going to make a disruptive decision, are you putting too much at risk? So the other thing is, I like me some bonds. But I also don’t want to go buy individual bonds. I would rather use an institutional portfolio, I’d prefer exchange traded funds for efficiency to do that. But with that said, we know if interest rates move up bond values. So what would we do in that situation, we would adjust bond holdings, our institutional partners will have going in and make made adjustments to have the bond portfolios less impacted by interest rates moving up. So when people are concerned about that, and we have people reaching out to us about that, and, and our guidance is we’ve we’ve already made those adjustments. Now, there’s some other things we’ve probably made recommendations to that have not been followed. And they’re, they’re going to need to do that. Because existing clients may look a little bit different than new clients. And Warren is new clients. We also add tactical, quantitative, tactical, in the mix, and you want to define?
Nicholas Rohde 08:11
Basically, what we want to look at is data, we want to follow the data on where is the momentum of the market. And if we need to shift momentum, because the data is showing there’s a problem. We need that money to shift and go to what’s working and what’s in favor. Because what you mentioned about what’s in favor, what drives the market, I kind of think of momentum, like the wind, you might be gusting one way for a long time, but it will shift. And we want somebody that has the capability to do that with us to get through these kinds of issues, where inflation has concerns where you know, stock market and interest rate interests with bond values have concerns, we need to have some money that can react to that as well.
Gregory Ricks 08:50
Yeah, you, you said it very well there and we want money to follow momentum and extreme situations we and even for short periods, some portion of that block can shift the cash correct as it awaits where momentum is shifting to. And we like that. And that’s a great way to define it is we utilize a lot of data throughout every day, all day to give guidance on where that goes. And And the neat thing about it is we use data for fundamentals of why we use asset classes, but we also want to use data which is is the modern capability. It’s kind of like yeah, I don’t want those nuclear machines, taking pictures from my body and finding out what’s wrong and running all these tasks. You know, just you know, listen to my heart and take my time and use Windows x rays that light me up and tell me what’s wrong. Now we want to use the most modern Data technology that we have to help our money and we also look at history to tell us what skews, better returns. And the whole point is we’re not doing something and forgetting about it. We’re making adjustments as we go.
Podcast Intro / Outro 10:19
Thanks, everyone for tuning into this week’s episode of the Ask Gregory Podcast. We’d like to give a big thank you to our guests Nicholas Rohde for joining us on this week’s episode of the podcast. And don’t forget we’ve got a complimentary download waiting for you on this topic. If you go to gregoryricks.com/podcast80 at again that is gregoryricks.com/podcat80
Gregory Ricks 10:40
Yeah, if you’re needing help on something like investment planning, estate planning, you know the guided planning system that we use income planning, just start with a 15 minute conversation (504) 823-9200 or gregoryricks.com
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