With another U.S. Federal Reserve meeting on the horizon, investors will once again be pondering the potential impact of higher interest rates on their portfolios. It appears that global economies remain robust, and growth and inflation remain above target in major global markets such as the U.S., key drivers behind the quantitative tightening which has taken the place of years of quantitative easing.
As the Fed continues to unwind its balance sheet and raise rates higher, more and more emphasis will be put on the ability of financial markets to pick up the slack; with the average retail investor who bought at the trough of the market nearly 10 years ago sitting pretty, the question remains as to just how long of a holding period is the optimal way to go?
Of course, interest rates are only one key factor investors need to consider, and in that regard, picking securities which are less tethered to interest rates and more defensive in nature is probably a good idea in this market, generally speaking.
For investors worried about a flattening yield curve and an economic melt-up taking place, other hedging strategies may be better utilized in this current environment, considering various option trades are relatively cheap and provide relatively decent insurance against such a drop.
Another interest rate decision will come and go, but for long-term investors, finding the right mix of cyclical and defensive securities to complement a rising interest rate environment should be a key investing goal currently.
Invest wisely, my friends.
