Higher interest rates are mostly a positive, but investors need to watch out for pitfalls, too.
[Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_improvingfinances&utm_content=51674&elqTrackId=31bd6007248f4fee9a4c97d06ab8d096&elq=51009be74b974288afd32052df232e2b&elqaid=51674&elqat=1&elqCampaignId=25962) [Improving Your Finances] Improving Your Finances with [Christine Benz]( [Christine Benz] Just two short years ago, yields on 10-year Treasury bonds were below 2%. Theyâve more than doubled since then, as the Federal Reserve hiked interest rates 11 times in an effort to stamp out inflation. Those rate increases were partly to blame for stocksâ and bondsâ losses in 2022: Higher yields depress the prices of already-existing bonds with lower yields, and higher interest rates also threaten to slow the economy, which in turn hurts stock prices. Notwithstanding those bobbles, however, higher interest rates are largely a positive for investors. Higher yields lift [the long-term return prospects for bonds and other short-term assets]( meaning that investors can earn higher returns without having to venture into riskier asset types like stocks. That, in turn, makes other aspects of financial planning easier. For example, with higher yields on safe securities, our starting safe withdrawal percentage for new retirees bumped up to [4.0% in 2023]( from [3.8% in 2022]( and [3.3% in 2021]( when yields were at their nadir. But higher yields also bring potential pitfalls, such as overdoing cash allocations and ignoring tax considerations. I wrote about [5 yield-related pitfalls]( this week. On the topic of bonds and income, check out [John Rekenthalerâs examination of just how attractive bonds are relative to stocks today](. Despite higher yields on bonds, which portend higher long-term returns, John concludes that stocks are still apt to be the better bet for long-term investors. But of course, thereâs a caveat! I also appreciated Amy Arnottâs recent exploration of [the funds that have destroyed the most of shareholdersâ capital over the past decade]( a counterpoint to her piece last week about [the biggest wealth creators over the past 10 years](. I couldnât help but be struck that the wealth destroyersâ list was dominated by niche funds and speculative strategies. To me, thatâs a valuable reminder to stick with simple, straightforward building blocksâbroad market index funds and ETFs and basic balanced funds. Finally, if youâve been keeping the faith in international stocks as I have (or even if you havenât), our recent podcast [discussion with Invescoâs Justin Leverenz]( should provide some food for thought. Justin has long been one of our analystsâ favorite emerging-markets managers, and he had lots to say about China, Mexico, and the prospects for emerging markets overall. With warm regards,
Christine Benz [Experts Forecast Stock and Bond Returns: 2024 Edition]( Bond outlooks improve, but stocksâ prospects drop on the heels of 2023â²s rally. [See Forecasts]( Share: [facebook]( [twitter]( [linkedin]( ADVERTISEMENT [media]( [media] [The Good News on Safe Withdrawal Rates]( Our annual study suggests that new retirees can spend more from their portfolios. [Dig Deeper]( [Whatâs a Safe Withdrawal Rate Today?]( What declining stock and bond prices and higher inflation mean for retirement income. [Find Out More]( [What's a Safe Retirement Spending Rate for the Decades Ahead?]( Simple tweaks can have an appreciable impact on your withdrawal rate. [Read More]( [Bonds Are Still Too Expensive]( Their relative yields have become acceptable, but thatâs not the whole story. [Uncover Full Story]( [Seeking Yield? Avoid These 5 Mistakes]( Higher interest rates are mostly a positive, but investors need to watch out for pitfalls, too. [Uncover Insights]( [15 Funds That Have Destroyed the Most Wealth Over the Past Decade]( These funds managed to lose value for shareholders even during a generally bullish market. [Learn More]( [15 Top Wealth Creators in the Fund Industry]( These mutual funds and ETFs have generated the most value for shareholders in dollar terms. [See the List]( [Invescoâs Justin Leverenz: Emerging Markets Are âIncredibly Attractiveâ]( A veteran globe-trotting investor sees upside in an unloved asset class. [Listen Now]( Listen Now
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