|On one hand, rising interest rates often are accompanied by a strong economy, which is good for stocks. On the other hand, higher borrowing costs can hurt stock prices. But in any case, by purchasing a diversified array of high-quality stocks, and by holding them for the long term, you give yourself the opportunity for success through all interest-rate environments.
How do higher interest rates affect bonds? When rates rise, bond prices fall. But if you hold your bonds until maturity, you receive regular interest payments and if you own investment-grade bonds, you can be pretty sure you’ll get your principal back when the bond matures.
In short, pay attention to interest rate movements but don’t let them dictate your investment decisions.
Help Boost Your Income, Even When Interest Rates Fall
If you depend on fixed-rate investments from income, you’re probably concerned about low interest rates. Fortunately, you can take steps to potentially boost your cash flow. For example, you can build what’s called a “bond ladder.” By owning a group of bonds that mature at different times, you may be able to increase your income while protecting yourself somewhat from the effects of fluctuating interest rates.
You also might consider stocks that pay dividends. Over time, dividend payments can add to your income. But when you’re looking for dividend-paying stocks, be careful. Some companies issue high dividends one year, only to cut them the next, and stocks are subject to market risks. That’s why you need to look for high-quality stocks that have a long history of increasing dividends. These companies may not be flashy, but they can give you what you need: steady income.
Contact Wendell at Edward Jones www.edwardjones.com