Rising interest rates and retirement: pros and cons
Rising interest rates present favorable and unfavorable consequences for savers, according to Jack Otter, editor-at-large at Barron’s.
“On the one hand, of course you want more income, but the process of getting there is very painful if you’re a bondholder,” he told FOX Business’ Neil Cavuto on “Cavuto: Coast to Coast.”
He said many people don’t understand the dynamic between rising yields and bonds.
“When yields go up, when the income from a bond goes up, the value of that bond goes down,” he said. “The reason is because who wants to buy your 3% bond if there is a 4% bond out there. So the 3% bond is worthless.”
One thing savers can do is look to two-year bonds for returns.
“This is a great thing, the best in 10 years, a two-year bond now has a decent yield of over 2%,” he said. “So that is a good place to be.”
Even though he doesn’t think interest rates will rise significantly, he said if you’re on the verge of retirement, it’s good to own some stock.
“If you’re 60, your life expectancy is somewhere north of 90 – that’s a long horizon,” he said. “You don’t want to just sit at 2%.” Otter added that diversifying overseas will give investors the opportunity to take advantage of cheap stocks.