T he Fed’s decision on interest rates at its June 13-14 meeting should have had virtually no effect on your life or your investments. Much like the first interest rate increase in December 2015... the second increase in December 2016... and the third increase in March... folks in the financial media are again warning that Fed action may send the stock market tumbling. For example, when the Fed first raised rates a year and a half ago, Bloomberg declared, “No One Knows How Messy the Fed Increase Could Get”... Business Insider warned: “The Fed’s rate hike could cause chaos in markets”... The Guardian called it the “rate rise heard around the world”... And an analyst at the Royal Bank of Scotland even issued a recommendation to “sell everything except high- quality bonds.” All this fearmongering was ridiculous... Not a single, coherent investment strategy relies
The S&P 500 Index is up about 20% from the first time the Fed raised its interest rate in December 2015... about 7% from its increase in December 2016... and up another 2% from its March increase.
changing your entire portfolio based on what might happen in the next month. Or worse, what has happened in the previous month. And sure enough... the U.S. economy has kept “grinding on”... while stocks have done the same. In fact, the S&P 500 Index is up about 20% from the first time the Fed raised its interest rate in December 2015... about 7% from its increase in December 2016... and up another 2% from its March increase. (See chart above.)
on selling all your positions based on a prediction of a market crash . No successful hedge fund, portfolio manager, pension fund, or private wealth manager operates on such a nonsensical scheme. At times, you may increase your allocation to cash and defensive plays. You may add some short positions. But the best way to minimize losses and stress in a market downturn is through asset allocation, diversification, and using stop losses... not
American Consequences | 45
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