So you bought into the hype that markets can’t go up as interest rates rise (see my prior blog post where I explain why this is a faulty premise). You took profits (if you had any) and moved a portion of your portfolio to cash last year. What do you do now?
- First, look at some cash alternatives that pay decent interest. One option to consider is US treasury money market accounts that are paying a decent interest, along with CDs and individual treasuries.
- Second, consider investing the interest from the fixed income investments into equities. This strategy doesn’t put principal at risk and gets you increased equity exposure over time.
- Third, build a portfolio and buy a little bit each month. This is what I call the low and slow method. Don’t jump back in all at once, but do so over time.
- Fourth, what is your time horizon? Maybe you need the money soon and can’t afford to risk principal in the equity market. On the other hand, if you have a long time till retirement, you have time to wait out any market downturn.
- Lastly, as the risk free rate of return increases, you may want some fixed income exposure, but realize that historically over the long term equities will still outperform. Diversification is your best friend!!