Rising Interest Rates Threaten Mutual Fund Returns

The rally in stock markets during the pandemic was nothing short of astonishing. However, rising interest rates raise the question of how long this bull market can last.

In the twelve months to March, the average common stock mutual fund tracked by Morningstar returned nearly 66 percent – a remarkable rebound after a three-month loss of nearly 22 percent earlier last year.

The turnaround came after the Federal Reserve stepped in to aid the financial markets and the economy, fueling much of the exuberance in the equity markets with low interest rates.

But with the upturn in the economy, interest rates have started to rise. At the start of a new quarter, it is a good time to ask how long these strangely prosperous times can last.

Unfortunately, my crystal ball is no clearer now than ever, and I cannot time the movements of the market any better than anyone. However, this is certainly a good time to assess whether you are well positioned for a possible downward shift.

As always, the best approach for long-term investors is to build a portfolio with an appropriate, diversified asset allocation of stocks and bonds, and then live with whatever comes.

Our quarterly investment report should help. If you haven’t been an investor before, we’ve included tips to get you started. Here you will find broad coverage of the latest trends, guidelines for the future, and personal finance considerations at a challenging time.

It’s been a long, good run for the stock market, but much of the rebound has depended on low interest rates and interest rates have risen in the bond market. Investment strategists take a variety of approaches to solving this difficult problem. At the moment the bull market is riding on.

Bonds add ballast to diversified portfolios, dampen fluctuations in the stock market, and sometimes deliver solid returns. Because bond yields have risen – and yields and prices are moving in opposite directions – bond yields have suffered recently. However, adding a diversified selection of international bonds to domestic holdings can reduce the risk on the bond side of your investments.

Yes, the markets and the economy are complicated. This often scares people off and prevents them from taking action that can help them and their families immeasurably: investing.

But investing doesn’t have to be complicated. A concise article provides information on how to get started and how to navigate the markets over the long term.

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