Over the last few days, the topic of interest rates is back in the headlines. In fact, as of today it appears many Federal Reserve officials see a rate hike fairly soon. Many of you may even be curious how this affects your financial situation.

For those holding fixed income assets or withdrawing income from their portfolio in retirement, it can be a positive as you should have the ability to generate more income from your bond holdings. Then of course for those looking to finance business operations or perhaps refinance a home mortgages, it may start to look less attractive as rates move higher. However, it’s likely that most who needed to restructure their finances have already done so given how long rates have remained low. These are just two common examples we can relate to, but there are other factors as well.

More specifically, some have concerns around how this impacts their investment portfolio. Many feel that when interest rates go up, the stock market always goes down. This is clearly not always true, however, much of the media and other news outlets often suggest this is the case. Below is a helpful visual that provides a nice perspective on the actual correlation between rising interest rates and stock returns. The chart below uses the 10-year Treasury yield along with the S&P 500 Index.


As you can see, there have been both positive and negative stock returns associated with various levels of interest rate environments. More specifically, in periods like today when rates have started low and move up, there have been many periods of positive stock market returns. It also appears that when 10-year treasury yields move closer or above a 5% level, there have been negative market environments and certainly increased volatility. This is not a forecast of any kind, but more so helping to educate the actual data and facts of prior interest rate environments versus what information the pundits or talking heads may try to put on investors.

As we always do with our clients, we help them determine what (if any) a higher valued stock market or a rising interest rate environment may have on their financial planning, investment strategy, or retirement income solutions. Ultimately, if changes are required after assessing these conditions as well as other new concerns or developments, we certainly address them.

As always, we are here to help.


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Source: FactSet, FRB, Standard & Poors, J.P. Morgan Asset Management. 
M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. We provide investment information that we believe to be useful and accurate. However, there cannot be any guarantees. There are many different interpretations of investment statistics and many different ideas about how to best use them. Nothing in this presentation should be interpreted to state or imply that past results are an indication of future performance.
This presentation does not constitute a complete description of our investment services and is for information purposes only. Actual portfolio allocations may vary from the allocations within this post. Past performance is no guarantee of future results or returns. The returns are generated per the retroactive application of the stated index, designed with the benefit of hindsight, to historical data (i.e., back-tested). They represent hypothetical results of an investment in various asset class indexes and do not reflect actual investments of money in any CAM Investor Solutions strategy, and may not reflect the impact that material economic factors might have on CAM Investor Solutions’ management of the model portfolios if it were actually managing the model portfolios during the period described. Returns are gross of advisory fees, brokerage or other commissions, mutual fund exchange fees, and any other expenses that a client would have paid.

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