The Federal Reserve raised interest rates this week for the first time in nearly a decade, and this could affect markets in the coming year.
To help you prepare, FundX President Janet Brown shared a four-step process that has helped her adapt to changing markets for over 40 years.
Step 1: Consider a wide range of funds
“Changing markets bring new opportunities, but in order to take advantage of these opportunities, you’ll need to consider many different kinds of bond funds,” Janet wrote.
“In the fixed-income portfolios I manage, I can invest in corporate and government bonds; short-term and intermediate-term bonds; higher-quality and lower-quality bonds; and domestic and foreign bonds….I also consider low-volatility balanced or alternative funds, which tend to be less affected by interest-rate fluctuations.”
Step 2: Manage risk
Funds that can do well in rising rate environments, like high yields and floating-rate funds, can be quite volatile so you’ll also want to manage risk.
“I cap exposure to riskier funds, like lower-quality (high yield) bonds, foreign bonds, and balanced and alternative funds,” Janet wrote. “And I also make sure to diversify my bond fund positions so I’m not concentrated in any one area or one fund.”
See what next steps to take in Janet’s Forbes piece: What Fund Investors Can Do About Rising Rates