Inflation and Rising Interest Rates – What Do I Do Now?

January 30, 2013
Share |

Inflation, Rising Interest rates, Real Estate, Value of the Dollar, Food and Energy costs

Inflation erodes the value of your money and resultantly, the amount of things that same money can buy. Inflation is partly responsible for why your income does not go as far as it used to and why you pay more at the gas pump and at the grocery store and real estate. Other rising rates can cause higher interest costs and more expensive car, home, and business loans. Inflation and rising rates can hurt your income and the value of your assets dually. It is a tenet of finance that when rates go up, prices go down and vice versa. Therefore, rising rates can cause your assets to lose value, especially those that are fixed-income. Fortunately, there are things you can do to help protect your investments and retirement from rising interest rates and inflation.

Fixed-income assets, such as bonds, typically suffer in higher interest rate environments. Other asset classes, such as stocks and commodities, maintain their value or may even grow during times with higher interest rates. Many investors have had their portfolios over-allocated to bonds since the recession and the stock market plummeted but the stock market has recovered somewhat and interest rates appear to be on the rise presently. Therefore, you may need to adjust your asset allocation to address the changing environment. What worked in the past may not work today. In order to diversify your portfolio, stocks, commodities, and other assets may need to be considered. Hard assets such as real estate, gold, and other metals can help in this diversification. Talking with a financial advisor from Mundo Financial can help you weigh your options and initiate a strategy to address the issue of rising interest rates and inflation.

We are living in unique financial times. Rising interest rates, I believe, are one of the most serious risks threatening investors’ portfolios at the moment. Just when you are prepared to retire, you may find that your money does not buy the same amount of food, clothes, and entertainment as it once did. You may also find that the value of your investments has fallen dramatically, especially bonds and other fixed-income assets, due to rising interest rates. Mundo Financial can help you address these issues. Mundo Financial advisors and staff can work with you to implement an investment strategy that can help you maintain your buying power, and depending on your specific situation, possibly buying real estate in your IRA accounts to help generate income.