Jim Haston, financial advisor with Edward Jones Investments, offered an overview on how to approach saving in the current financial climate for the Monett Kiwanis Club.
Haston reported the public is frequently asking what to do if interest rates go up, how will the federal deficit affect the economic picture and where does new healthcare legislation fit into the big picture. Haston said these are the wrong questions. The individual investor cannot influence federal policy or change healthcare policy.
"What you can do is take steps to manage the investment risks associated with changing interest rates, a growing deficit and healthcare reform," Haston said.
Interest rates on bonds have generally declined for the last 30 years. Haston said bond prices will rise and fall as interest rates change. Bond price fluctuations only matter if a person plans to sell bonds prior to maturity.
Laddering, or owning bonds with a variety of maturities, is a good strategy to deal with interest changes. Haston said intermediate-term bonds are a better value than long-term bonds at the present time. This may be a good time to rebalance a portfolio to reduce the amount of long-term bonds in it.
Haston urged investors not to change their strategy over concerns about the deficit. Rather, he recommended managing risk in one's portfolio better. Owning shorter term bonds will decrease the effect of interest changes that could come if the federal government issues more Treasury bonds to pay for debts, thus spiking interest rates. Concern about higher taxes can be addressed