Wednesday, October 27News That Matters

Rising Interest Rates Threaten Mutual Fund Returns

The stock market’s rally during the pandemic has been nothing short of amazing. But rising interest rates are raising the question of how long this bull market can last.

In the 12 months through March, the average general stock mutual fund tracked by Morningstar returned nearly 66 percent — a remarkable rebound after a three-month loss of nearly 22 percent at the start of last year.

The turnaround came after the Federal Reserve stepped in with support for financial markets and the economy, fueling much of the stock market’s exuberance with low interest rates.

But with the economy taking off, rates have begun to rise. At the start of a new quarter, it is a propitious moment to ask, how long can these strangely prosperous times last?

My crystal ball is no clearer now than it has ever been, alas, and I can’t time the market’s movements any better than anyone else. But this 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 set up a portfolio with a reasonable, diversified asset allocation of stocks and bonds and then live with it, come what may.

Our quarterly report on investing is intended to help. If you haven’t been an investor before, we’ve included tips on how to get started. Here you will find broad coverage of recent trends, guidance for the future and reflections on personal finance in a challenging era.

It’s been a long, fine run for the stock market but a great deal of the upswing has depended on low interest rates, and in the bond market rates have been rising. Investment strategists are taking a wide array of approaches to deal with this difficult problem. For now, the bull market rides on.

Bonds provide ballast in diversified portfolios, damping the swings of the stock market and sometimes providing solid returns. Because bond yields have been rising — and yields and prices move in opposite directions — bond returns have been suffering lately. But adding a diversified selection of international bonds to domestic holdings can reduce the risk in the bond side of your investments.

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

But investing need not be complicated. A succinct article gives pointers on how to get started, and on how to navigate the markets for the long haul.

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