By Alex Veiga ,AP
Richard Jones, a wealth adviser in Los Angeles, has one word for clients who worry about the potential impact of the U.S. Federal Reserve’s first interest-rate increase in nine years:
“We’re telling clients not to panic, not to be overly concerned,” said Jones, a managing director with Merrill Lynch Private Banking. “Remember your basic goals and objectives.”
It’s a message he and other advisers have sent clients in the months leading to the Fed’s move Wednesday to raise its benchmark rate from a record low near zero. Financial pros have been counseling clients that returns on stocks, bonds and other investments aren’t necessarily destined to suffer because of a modest Fed hike.
Investment returns hinge on many factors beyond a Fed rate increase — especially because the Fed stressed that its pace of increases will be gradual and that rates will likely stay historically low in the near future.
For potential home buyers, advisers say mortgage rates aren’t necessarily likely to rise. Long-term mortgage rates tend to track the yields on 10-year Treasury notes, which should stay relatively low as long as inflation does.
“The Fed has promised to take it slow with the rate hikes, which should help to give consumers buying houses, cars and things to put in their houses and cars plenty of time to make decisions,” said John Canally, chief economic strategist for LPL Financial, an independent broker-dealer in Boston.
Here’s a sampling of what financial planners and investment advisers have been telling clients to do in the face of rising interest rates:
A well-diversified portfolio of long-term investments should manage to withstand any short-term consequences of a series of slow and modest Fed rate hikes. Most important is for investors with a diversified portfolio and a prudent strategy to stay on track with their long-term goals.
“Unless a portfolio does not reflect an investor’s true goals (and) risk tolerances or is not appropriately diversified in the first place, I tend to think that most investors should resist the urge to overreact,” said Bruce Colin, a certified financial planner in Rancho Palos Verdes, California.