What’s the best way to time interest rates?

by Pat Luby

“Shouldn’t I just wait for rates to go higher?”

“When are yields going to be more attractive?”

“What will be the signal that rates are going to start moving?”

“What’s the best way to time interest rates?”

If these comments strike you as familiar, it is because these are some of the same questions that income-hungry investors have been asking for years—and now, with the Fed seemingly closer to finally raising the fed funds target rate, the thirst for higher more attractive yields has intensified.

Answering these questions in context, however, also requires addressing several key investing ideas, including:

  • Portfolio diversification and how much to allocate to bonds (and, therefore, also to cash and equities)
  • How much income you want or need is a function of your lifestyle—not of the market: your goals should be mapped out and described in your investment plan or policy
  • Understanding what influences interest rates and how to invest through the economic/interest rate cycles

The way that an investor deals with the first two points will be helped or hindered depending on how they deal with the third point. This article will discuss how to time interest rates, and we will discuss the other issues in future articles.

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