Buying a bond is like issuing a loan to a government or corporation. The bond is an agreement to pay you back a specific amount at a specific date and pay you interest (usually biannually) along the way. 

If Bonds Are Guaranteed Money, Why Invest in Anything Else? 

The interest paid back on bonds is modest at best, and most bonds aren’t adjusted for inflation. With a bond you generally know exactly what you’ll make for the life of the bond, but there’s an inherent opportunity cost for that safety. 

Bonds are highly sought after for their reliability. They’re one of the lowest risk investments, but their predictable return often falls short of more risky and aggressive alternatives.

That doesn’t mean bonds are bad. For some people, bonds make a lot of sense. 

Yes–inflation-linked bonds, like Treasury Inflation-Protected Securities (TIPS) exist. Essentially, the principal of the bonds (the face value) increases when there’s inflation, and the interest payments are based on the face value. 

That’s not always a good thing when there’s deflation. The deflation risk is serious enough that the U.S. Treasury Department sets a floor on TIPS valuation (par value). The par value reduces the risk of deflation, but purchasers could still end up losing money due to inflation-adjusted interest accruals being lower. 

There are also some potential tax ramifications due to the way the valuation adjustments are calculated as income. If you have inflation-linked bonds and you have questions about how this “phantom income” can affect your taxes, you should speak with a financial planner or tax expert. 

A retirement planning advisor can help you understand whether inflation-linked bonds are a good idea for your portfolio. Year-over-year inflation hit 7.9 percent in March 2022, a 40-year high. It’s the sharpest jump since the early ‘80s. This is why many investors are giving inflation-linked bonds a second look. Whether they’re right for you or there are more advantageous alternative inflation-absorbing options for your portfolio depends on your situation.   

Are Bonds Good for Retirees and Soon-to-Be Retirees? 

Bonds are one of the investments most frequently associated with risk-adverse investors. Many people nearing retirement, as well as those who are currently retired, studiously avoid risky investments. If that’s where you’re at in your life’s journey, you likely don’t want to jeopardize the value of your nest egg. The predictability of bonds makes them a safe option. 

On the other hand, young people who are still in the early stages of retirement investing can afford to be risky. If you’re in your 20s or 30s, you likely won’t be withdrawing from your 401(k) or IRA for several decades. In that time there will likely be many ups and downs in the market, and you shouldn’t lose sleep over it because you won’t be relying on those dollars for many years to come. That’s why many young investors feel comfortable taking the riskier road with greater growth potential. 

Bonds may still be part of a young retirement investor’s diverse portfolio, but they likely won’t be the largest part.

Bonds are not traded on an exchange like equities or ETFs, but you can buy them through brokerage accounts. Investors can also buy U.S. Treasury bonds directly from the government. 

Do take note that brokerage firms may charge a fee for facilitating bond purchases, and different brokers charge different prices. You may want to research your options before purchasing. 

What Kind of Bonds Can an Investor Purchase? 

Treasury bonds, or T-bonds, are one of the more popular types of bonds because they’re backed by the U.S. government and are often considered virtually risk-free by investors. They have the added benefit of being exempt from local and state taxes (but not federal taxes). 

Investors can also purchase municipal bonds and bonds issued by companies. A company or a local government may issue bonds for a specific project, like building a new manufacturing facility or funding the construction of hospitals or schools. 

The earned interest on corporate bonds is taxable, but those costs can be offset by higher yields. 

There are two categories of municipal bonds: general obligation bonds and revenue bonds. 

General obligation bonds are backed by the “full faith and credit” of the local government issuing the bond, similar to the way the U.S. government backs Treasury bonds. 

Revenue bonds are paid back with the proceeds of the project. The simplest example is issuing a revenue bond to fund the construction of a toll road. The tolls collected would go back to bond purchasers. 

Municipal bonds have a philanthropic component for some investors. They’re a good way to support community betterment while also saving money for the future.  

Talk With a Fullerton Financial Planning Advisor About Bonds

Are you wondering if it’s time to begin safeguarding your nest egg by transferring your investments into bonds? The investment managers and retirement planners at Fullerton Financial Planning would be happy to discuss the pros and cons with you. Call us at 

 Bonds… Financial Bonds. What Are They and How Can You Utilize Them? 

Yes–and a credit card is one of the easiest and most affordable ways to build good credit for a couple fundamental reasons:

There is a specific class of credit card designed for people who have less-than-perfect credit and young borrowers who have yet to establish any credit history. These are known as secured credit cards. The primary difference between these and other credit cards are:

Although these differences are the norm, they’re not necessarily set in stone. Some secured cards allow you to get a higher credit limit by putting down a larger down payment. Some might have higher or lower interest rates than others. 

Your credit worthiness will likely impact the types of secured cards for which you qualify. 

How Does a Secured Card Improve Bad Credit? 

The best way to improve your credit with a secured credit card is to pay off the entire balance every month. Technically, you can accomplish the goal of improving your credit by simply making on-time payments, but if you’re only making the minimum payments, the interest can build at an extraordinarily rapid rate. If you need to use a secured credit card, it’s likely in your best interest to not carry any balance from one billing period to the next. 

Making payments on time and avoiding defaulting will make you less risky as a borrower. That should result in credit score improvements that will allow you to qualify for a regular credit card or other types of financing. Home loans or car loans are other options for improving your credit, but the rates you’re eligible to receive might be high if your credit score is low, and there’s no way to avoid interest with those types of secured loans. 

Secured credit cards are one of the few tools that lets you repair your credit without incurring a lot of added interest–as long as you use it wisely.

Should I Hold Off on Buying a Car or Home if My Credit Isn’t Great? 

Not necessarily–that’s one of the reasons refinancing exists. Fixed rate loans prevent lenders from changing the rates on you. When you sign a loan contract, that fixed rate is the one you’ll have for the life of the loan unless you refinance. 

If you initially acquired a home loan, auto loan or recreational vehicle loan when your credit was average or below average, you should strongly consider refinancing once your score has improved. Getting a lower rate and/or shortening the term of the loan can allow borrowers to avoid a significant amount of interest.

What’s More Important: Saving for Retirement or Paying Off Debt? 

This is a complicated question, and the answer tends to be unique to each individual or household. If the interest rate you’re paying on debt far outweighs the compound growth of the money you invest into a retirement savings account, it may make sense to pay off debt before investing in retirement. 

On the other hand, if your retirement funds are invested wisely and growing at 10 percent a year and your home loan or car loan has an APR of 4.5 percent, it may make more sense for you to invest and keep making minimum monthly payments on your loans.

You might also pay off certain types of debt strategically to help make retirement more sustainable. For example, you might put less away in retirement in the short term so you can get your mortgage paid off. If you can eliminate your monthly mortgage payments, your housing in retirement essentially becomes free (except for Arizona’s modest property taxes) for as long as you live in the home you own outright. 

There’s also no rule that you must choose one or the other. You can take the time to budget so you can put money away in your retirement savings accounts while paying a little extra on certain loans each month. 

Talk with a Fullerton Financial Planning Advisor 

Credit situations and retirement planning are almost never uniform. That’s why there’s no real one-size-fits-all solution. There are certain tools, like secured credit cards, designed to help people who need to improve their credit score, but the exact credit challenges or debt secured credit card users must overcome can vary dramatically. 

 or retirement planner who can give you advice or customize a saving plan unique to your situation. Call Fullerton Financial Planning today at 

 to learn more about investment management and 

 Can I Get a Credit Card and Build Credit if My Score Is Low? 

It depends on the context, your existing credit history and what rates competing lenders are willing to offer you based on your perceived credit risk. 

For example, there are multiple points at which you can potentially negotiate a lower interest rate on a mortgage. When you’re shopping around for mortgages, you can approach lenders with rates you’ve qualified for from other loan originators. 

You might do this if you’d prefer to keep your mortgage with your existing bank or credit union even though the initial interest rate, they offered you wasn’t very competitive. Reach out to them with evidence that another lender is beating their rate and they may adjust what they’re offering to keep you as a loyal customer. 

You can also try to negotiate a lower rate on credit cards but doing so successfully isn’t always easy. There are certain historical factors that will likely influence the credit card company’s receptiveness. Customers who have been around for a long time or who have relatively solid records of regularly making payments are more likely to achieve favorable results. 

Credit card companies make money off people who carry a balance on their cards, but they can potentially lose money if you never pay them back. If you temporarily getting a lower rate increases the likelihood of them getting paid back, they might be amenable to negotiations. 

Some mortgage lenders might offer “discount points.” These let you put more money down to get a slightly lower interest rate for the life of the loan. The equation is usually one percent extra down for 0.25 percent off your interest rate. Even relatively small decreases in interest at the start of your loan can save you tens of thousands of dollars during the 30-year life of a loan. 

There’s generally a parallel between what you’re willing to put down and the rates for which you’ll qualify. If you can afford it, increasing your down payment can have long-term benefits for your interest rate. 

Some of the tactics that work in mortgage interest rate negotiations can also be effective when dealing with credit card companies. Going into negotiations with proof that you qualify for lower rates elsewhere can give you a lot of leverage during negotiations. 

You shouldn’t try to mislead credit card representatives during negotiations. They can easily pull your credit history or investigate the rates you claim you could get elsewhere. Dishonesty may damage your reputation with the credit card company. 

There’s also a right and a wrong way to conduct negotiations in these circumstances. The frontline customer service reps you speak with likely don’t have the authority to unilaterally grant you a lower interest rate on your credit card debt. Ask for a supervisor or try to identify someone with the authority to authorize those types of changes. 

Also avoid being rude to the customer service representatives. These can be stressful issues, but the person on the other end of the line isn’t the cause of your interest rate. Being impatient and combative can stall your negotiations. 

If you have multiple cards, start your negotiations with the companies you’ve used longest. The trust you’ve built over the years, if you’ve historically been good at paying at least the minimum each month, may help in your negotiations. 

Some credit card companies are amenable to offering temporary breaks on credit card rates if you can make the case that the lower rate will help you get back on track. 

Can You Negotiate a Better Rate on Savings Accounts? 

This is an interesting question for long-term savers, especially if you’re concerned with market volatility or prefer to have a significant sum of money in liquid form for emergencies. Savings accounts are notoriously low interest. Banks are happy to charge you high interest rates on borrowed money, but they aren’t big fans of paying high interest rates to their customers.

It may be possible to negotiate your savings account rate if you can find the right person to talk to and you can make a compelling case that it’s in your bank’s best interest to do so. 

Many people bank at institutions where getting a higher savings rate simply won’t be possible. If that’s your situation, consider looking at alternative financial institutions that offer high interest savings accounts or investigate alternatives like CDs or bonds. 

Get Help With Your Retirement Savings and Long-Term Investment Strategies

The team at Fullerton Financial Planning are dedicated to helping Phoenix savers prepare for the future. Our fiduciaries excel at developing retirement saving and 

 to help people in all types of situations. 

Get clear answers to your investment questions by calling us at (623) 974-0300. 

 Is There a Way to Negotiate Lower Interest Rates With Creditors? 

A 401(k) is a retirement savings plan facilitated by an employer and managed by a third-party financial institution. Employees choose what percentage of their income they want their employer to contribute on their behalf. The money is deducted from the employee’s paycheck just like tax withholding. 

This method of retirement savings has helped millions of American workers prepare for retirement. It is far easier to save when you don’t have to make a conscious effort to do it on a regular basis. This set-it-and-forget-it approach to retirement savings (and investing) frequently leads to better outcomes in the long run. 

What Is a Tax-Advantaged Retirement Plan? 

Many retirement accounts offer some kind of tax advantage, including 401(k)s. Workers who use traditional 401(k) plans are making pre-tax contributions. That means the percentage of your income that’s being deposited into your 401(k) doesn’t have any taxes removed from it. At the end of the year, you don’t have to pay taxes on your 401(k) contributions, even though technically all those contributions come from your income. 

Everyone eventually does have to pay tax on their 401(k) disbursements (distributions) and withdrawals, but those aren’t intended to start until you’re 59 ½ at the earliest. Technically, you can withdraw money from your 401(k) whenever you like, but there is a steep IRS penalty on top of normal income taxes.

Although there are exceptions that will exempt you from early withdrawal penalties, they won’t exempt early withdrawals from income taxes. 

Although there are self-directed 401(k)s that can be used like any other brokerage account or IRA, most retirement savers who use 401(k)s are most likely to be given a handful of potential investment choices. 

Before making decisions regarding 401(k) investment picks, it’s important to understand one’s own risk tolerance. Some investment options carry significantly higher risk but also more growth potential. Others are quite low risk but will also grow at a slower pace than the riskier investment options. 

As a rule of thumb, most young retirement investors start out with high-risk investment strategies and gravitate to lower-risk options the closer they get to retirement. Protecting the value of your 401(k) is often more important than growth by the time you reach retirement. 

Most 401(k)s allow you to invest in specific mutual funds. These funds often include an S&P 500 fund, a large-cap fund, a mid-cap fund, a small-cap fund, international investment funds and funds specifically intended to be large-growth and high-risk as well as low-growth and low-risk, among others. 

Many 401(k) providers also offer more hands-off investment options where you simply choose a preferred 

, and the company manages the rest. For example, you may be able to set your retirement age and adjustments will be made to your 401(k) portfolio without the need for you to ever intervene. These options automatically alter your risk exposure and grow your money without you ever needing to rebalance your fund allocations. 

How you manage your 401(k) is a personal choice. Some people who don’t pay much attention to the market or investments may prefer a more turnkey approach. Others may want to micromanage their options and adjust their funds frequently. 

Many companies offer 401(k) matching as a hiring incentive and employee benefit. These matching funds are frequently in the three to six percent range. What that essentially means is an employer will match an employee’s contributions up to that percentage of their salary. 

If you made $60,000 and set your contribution to six percent to maximize your employer match, you’d be putting in $3,600 a year and your employer would be putting in $3,600 a year for a total contribution of $7,200 a year. 

Many employers match in the form of company stock, so they would technically be putting $3,600 of company stock into your 401(k) each year. In most cases, you are free to sell the company stock and move the proceeds into the other funds. 

Should You Maximize Your Employer Match? 

Some people believe that failing to maximize your employer matching funds is no different than leaving money on the table. However, every person is different. Some retirement investors believe they can beat their 401(k) investment options on their own through a self-directed brokerage account or some other investment strategy (like real estate). Others may simply not have the room in their budget to sacrifice that much of their check every pay period. 

Do You Want to Maximize Your Retirement Savings? 

Are you worried you haven’t saved enough for retirement? Are you wondering if there are better ways to grow your nest egg? Have you been saving in your 401(k), but aren’t sure it’s enough to maintain your quality of life during retirement? 

You don’t have to be in your 50s or 60s to have those questions, and it’s never too early to start planning for your future. 

 today at (623) 974-0300 to learn more about possible retirement investment strategies.

 Understanding 401k and the Affects It Has on Your Financial Future 

Raising children is a massive expense for most young adults. Current estimates of the cost of raising a child to the age of 18 is roughly $270,000. Luckily, new parents don’t have to shell out that sum of money at the start of their parenting journey. 

The health insurance policies of insured mothers will usually cover newborns for two weeks to a month, but you will need to add your baby to your health insurance policy as soon as possible. The birth of a child counts as a special circumstance in which you change your health insurance outside of the normal open enrollment period. 

You’ll likely be required to have the baby’s birth certificate and their social security number to complete enrollment. Avoid any lapses in coverage by finding out ahead of time what the grace period is on your coverage and how long the special enrollment period lasts. 

This is also a good time to review or modify your life insurance policies. Single people or couples without children, especially when they’re still relatively young, likely don’t dwell on life insurance. It’s not a fun topic of conversation.

It’s important to consider these things before delivery. While birth injuries and deaths are rare thanks to advances in modern medicine, they can and do still happen. Life insurance can help you find peace of mind that if the unforeseen happens, your surviving family members and your new baby will be protected.  

You can open a 529 plan as soon as your child (or your grandchild) has been assigned a Social Security Number. The importance of college varies from family to family, but if it’s something you want for your child in their young adulthood, there’s no reason not to start early. 

Not all 529 plans are made equal, so be sure to shop different state 529 plans and consider your options. Also keep in mind that contributions to a 529 plan are deductible in Arizona, which could be an additional incentive to start saving for your baby’s (or grandchild’s) future education. 

Arizona is one of only a handful of states where you can deduct contributions to any state’s 529 plan. In most states, you must enroll in your own state’s plan to claim deductions. 

Although 529 fees are not the only differentiating characteristic to consider when browsing plan options, it’s worth remembering the plan fees are annual. You will likely need to pay them for a minimum of 18 years. 

This, along with enrolling your new baby in your health insurance ASAP, is maybe the most important thing you can do ahead of your child’s birth. It’s also relatively easy to accomplish if you’re thorough.

Start calculating your projected expenses for things like diapers, baby food, formula, baby clothes, toys, baby proofing tools, accessories, etc. There are many new expenses you’ll have within the first couple years of a child’s life (babies are notorious for growing extraordinarily fast and will need things like new clothes often.) 

With a little bit of research on baseline baby consumption and expenses you can likely get a general idea of what you’ll need to spend each month. 

Also discuss childcare with your spouse or partner. Many young professional couples will need to pay for childcare, and it is likely going to be your biggest new expense in the years before your child can begin kindergarten. Know what you can afford and begin adjusting your spending habits accordingly, so you’re not blindsided by the cost. 

Like life insurance, estate planning is another unpleasant conversation, especially when you’re primarily focused on bringing a new life into the world. It’s still important to be prepared for the unexpected. You may want to consider scheduling a consultation with an estate planning attorney or researching boilerplate will options. If you have the assets and income to justify a trust, you may want to look into starting one. 

An emergency fund is an important thing for any young person or family to have, but it gets even more vital as you begin growing your family. If you haven’t set up a system for setting aside a little bit of your income each month for unpredictable financial hardship, now might be the best time to start. 

Talk to an Investment and Retirement Advisor in Phoenix 

At this point in a new family’s life there are a lot of different things they need to be saving for, from college savings plans and 

 can help you get a better grasp on your finances and ensure your assets are on a reliable path to sustained growth. 

 with a Fullerton Financial advisor today by calling (623) 974-0300.

 How to Financially Prepare for a Baby 

 How to Build Wealth 

Bitcoin is the latest craze in the world of online trading and investment strategies. Some people have been turning to Bitcoin to invest for retirement or grow their money, to varying degrees of success. You may have heard of people making fortunes in Bitcoin and are now wondering if you should try to get on board with the crypto craze and make a few bucks yourself.

But what exactly is a cryptocurrency, and should it be a part of your retirement portfolio?

Cryptocurrency is a digital currency. While some of them can be used to make actual purchases, many are held solely for investment purposes. Essentially, you exchange real money for digital currency with ownership stakes and trades etched in a decentralized blockchain ledger. The cryptographic nature of the Bitcoin mining process and the decentralization of the blockchain means Bitcoin can’t be counterfeited, but it can potentially be stolen by hackers. 

The inherent risk and earnings potential of cryptocurrency has to do with fluctuations in the exchange rate. When you go to another country and swap your dollars for another currency, you may lose or gain money depending on the exchange rate and how valuable the foreign currency is.

Cryptocurrencies operate in a similar fashion, but the exchange rate fluctuations are much more unpredictable and volatile than traditional government-backed currencies. This is mainly because cryptocurrencies are decentralized, meaning banks and governments have no control over their value or how they’re exchanged.

Bitcoin remains the dominant cryptocurrency, mainly due to its high value, but there are several other options like Ethereum, Binance, Tether and more.

Yes, Bitcoin’s transition from obscurity to mainstream use, as well as the many upstart cryptocurrencies that have sprouted in its wake, have made cryptocurrency one of the fastest growing asset classes. An asset class is a grouping of similar financial securities. For example, cash is a type of asset class consisting of liquid funds, savings accounts and hard cash.

Although it may be tempting to lump crypto in with cash and cash equivalents, its decentralized nature, the way it’s exchanged and its reliance on blockchain technologies instead of government central banks makes it unique enough to stand on its own.

As a result, more people are considering diversifying their investment portfolios with Bitcoin and other more affordable cryptocurrencies.

Whether Bitcoin should be in your investment portfolio is dependent on a lot of investment factors and risk tolerances that are unique to you. However, before you exchange your dollars for Bitcoin or another cryptocurrency, there are a few things you should know before deciding to buy.

Cryptocurrencies are subject to extreme fluctuations. This could lead to significant gains or devastating losses depending on where you are in your crypto investment journey. More hopes have been dashed thanks to crypto in recent years than just about any other investment opportunity. This is partially because inexperienced investors, often young people, have seen cryptocurrencies (as well as things like NFTs) as low-risk ways to get rich quick.

Unlike equities where valuations and investment outlooks are based on tangible things like balance sheets, consumer demand, intellectual property, business governance, etc., cryptocurrency valuations are based solely on demand.

Although the cost of an equity, bond or commodity can’t be perfectly predicted by its underlying fundamentals, those can at least inform market valuations. Cryptocurrencies generally don’t have that luxury.

If you have money to spare and enjoy risky “gambling,” Bitcoin and other cryptocurrencies may be a fun alternative to equities. However, if you’re looking for a steady, reliable and more predictable retirement investment, you may want to consider other options. That doesn’t mean its bad to have any cryptocurrency exposure in your portfolio, but you should speak with a financial advisor to ensure you’re minimizing your risk.

Cryptocurrency is also an attractive target for online fraudsters. Scammers and hackers may find it easy to get ahold of your personal information and drain your entire digital wallet. While traditional banks and financial institutions take great measures to protect you from fraud, and are usually insured, cryptocurrencies aren’t government-regulated, thus there is no guarantee you’d ever get your money back.

Thinking About Diversifying Your Investment Portfolio? Get Help From an Experienced Financial Planner in Arizona

Knowing where and how to invest your money can be a daunting task, especially when you and your family’s future relies upon the outcome of your choices. You don’t have to go through this process alone. At Fullerton Financial Planning, our financial advisors will help you 

 to ensure your portfolio reflects your unique life goals.

For more information, call our Peoria office at (623) 974-0300, our Tempe office at (480) 912-4500 or fill out our 

 Should Bitcoin Be in Your Retirement Portfolio? 

Tips for homebuyers fall into a variety of categories. The advice a young, first-time homebuyer needs might not be relevant to an older homebuyer who is purchasing their third, fourth or fifth property. However, there are some universal best practices that make purchasing a home or getting a mortgage easier and more affordable. These tips include things like:

There’s also a separate set of tips and tricks for retirees, soon-to-be retirees and people who are thinking ahead and looking into rental properties. Rental properties can be an effective option for people looking for steady supplemental income in retirement and a reliable store of value and inflation-adjusted wealth.

Depending on your expenses and the number of properties you’re thinking about purchasing, you might be able to support your lifestyle on rental income or at the very least supplement your other retirement income (pensions, 401(k)s, IRAs, etc.). Some common tips for investment property purchases include: 

 properties will likely depend on your age and where you’re at in life. Property management companies can potentially take on many tasks like finding tenants, collecting rent and maintaining the property. Alternatively, you could take on those duties yourself to avoid management fees. It all depends on how much supplemental income you need or want and the amount of time and effort you want to invest into being a landlord. 

Things do break in rental properties and eventually need to be replaced. If you buy three rental properties, that’s an extra three HVAC systems, roofs and landscapes to maintain. Significant unexpected costs can arise and it’s important to budget for those things. 

People who are buying a home have many financing options. Rental home shoppers can potentially get a single loan to finance the purchase of multiple investment properties. That often ends up be being easier than obtaining separate mortgages for multiple properties at the same time, which can make lenders leery. 

Both Fannie Mae and Freddie Mac have investment property programs that let you buy multiple properties (usually up to 10). You might also qualify for an FHA or VA loan for investment properties if you meet eligibility requirements. 

If you’re buying a home to be your primary residence, you have even more potential options. You can apply for a conventional mortgage through private lending institutions like your credit union, bank or independent mortgage lenders. 

In Phoenix, Scottsdale and Tempe, the current 

 is $647,200. Any financing over that amount is considered a non-conforming jumbo loan. The conforming loan limit is higher in high-cost areas, and the conforming amount can vary depending on the number of properties being purchased. 

How Should You Prepare for Your Mortgage Application? 

Are You Looking for a Reliable Retirement Investment Strategy or Long-Term Financial Plan? 

Phoenix retirement savers and investors may benefit from a free consultation with financial advisors at

. We would be happy to discuss ways you can save for retirement or establish supplemental income to sustain your lifestyle during your golden years. Call us at (623) 974-0300 to

 Financial Tips and Tricks to Use When Buying a House or Signing a Mortgage 

Interest rates and investments have a complicated relationship. The value of fixed-interest bonds usually decrease when interest rates rise, while the value of floating-rate bonds might increase.

Higher interest rates are often good for financial institutions, which is why they sometimes perform well when interest rates go up. Theoretically, higher interest rates should reduce economic expansion and earnings growth and therefore be bad for equities, but there are a nearly endless number of variables that also play a role in the performance of individual stocks and the market in general.

Why Would Higher Interest Rates Affect Stocks?

Low interest rates essentially mean it’s cheap for businesses to borrow money. In simple, general terms, affordable money means more growth. That’s why low interest rates tend to lead to higher stock prices. When the federal reserve increases interest rates and makes borrowing less attractive, growth might slow.

The Federal Reserve and the central bank have a few levers they can pull to affect interest rates and liquidity. When inflation is high or there are concerns about impending, persistent inflation, the Fed may attempt to correct it by setting higher interest rates on the money the central bank lends to commercial banks and lending institutions.

The higher cost of money discourages borrowing, reducing the growth of money in the economy and reducing inflationary pressures.

Interest rates can affect the attractiveness of certain types of bonds. Although you might assume higher interest rates would mean better yields and higher prices for bonds, that’s often not the case.

For example, fixed-interest bonds, like U.S. Treasury Bonds, are a more highly valued investment option when interest rates are going down since the bonds are locked in at a higher, more attractive yield rate. They’re less attractive when rates are going up.

State government and corporate bonds tend to track treasury bonds, which in turn impacts bond rates across the globe.

On the flip side, floating-rate bonds (also referred to as floating-rate notes) that are rate adjusted may outperform fixed-rate bonds when the Fed increases interest rates.

What Does Post-Pandemic Inflation Have to Do with Interest Rates?

Inflation, in simple terms, means there’s more demand and money than there is supply. If two people want the same car, the price of the car will go up.

Government spending in response to the pandemic resulted in trillions of dollars being rapidly injected into the economy, including directly into many consumers’ pockets. Generous unemployment benefits made it harder for employers to attract workers when lockdowns began to ease. Wages naturally had to go up to attract workers. Higher wages meant increased prices for goods and services.

Pent up demand, increased money in consumers’ pockets and persistent shortages in consumer goods have inevitably led to inflation. Low interest rates have also made borrowing money extraordinarily attractive – creating a perfect storm for inflationary pressure.

The Federal Reserve has suggested they’re 

 and may be increasing interest rates as soon as Q4 2022. A Reuters 

 in November 2021 predicted an initial 25 basis point increase in interest rates (0.25 to 0.50), followed by additional hikes for an eventual 1.25 to 1.50 percent rate by 2023. A majority of the economists who responded to the poll believed Q4 2022 was too late and hoped the Fed would act sooner.

Do All Stocks Suffer Due to Higher Interest Rates?

Not necessarily. Financial institutions that lend money often benefit from higher interest rates. Although fewer people and businesses are borrowing money, the banks experience a higher rate of return on the money they’re lending.

Even with the moderate rate hikes, interest rates would still be low compared to past years and decades, which means the impact of higher interest rates on growth might not be as severe as some investors fear.

As with all investments, growth or loss is not guaranteed. Some companies will grow while others will decline based on their business fundamentals – it’s the nature of business and the market. What’s important are the decisions investors make, their mix of assets and the investment strategies they pursue.

 that insulate our clients from risk while taking advantage of growth opportunities where they can be found. Every retirement investor is different. The 

 while you’re in retirement will be different than the strategy you benefited from before you started taking distributions.

We are sensitive to our clients’ needs and risk tolerances. You can trust your Fullerton Financial Planning fiduciary to listen to your concerns and offer actionable advice. 

 at (623) 974-0300 to learn how we can help you live comfortably, even during uncertain economic times.

 How Do Higher Interest Rates Impact Your Portfolio’s Growth? 

Stocks, or equities, are little slivers of a company. When you buy a stock, you’re technically become a part owner in that business. As the valuation of the business increases so does the value of your share. You can trade that share to someone else or buy more shares. A company that pays dividends is letting stock owners share in their profits.

Bonds represent a unit of debt – or money that’s been lent to either a company or government. You don’t own any of that company or a piece of the government, but since you own some of their debt, they technically owe you money. Bonds include a fixed interest on that debt and a specific term of repayment of the principal, which is frequently referred to as the face value.

With stocks you’re buying a piece of the business. With bonds you’re essentially owning a tradeable unit of business or government debt.

The Similarities Between Stocks and Bonds

There’s a reason both terms are often used in quick succession. The way in which stocks and bonds are traded are fairly similar. Anyone can easily open an investment account through which they can purchase and sell stocks and bonds. Many retirement savings vehicles, like 401(k)s or IRAs, allow you to purchase stocks and bonds.

Some mutual funds and ETFs hold both stocks and bonds (often referred to as “hybrid funds”), so you could technically be getting both small ownership interests in some companies and a small bit of debt through one purchase.

And they both serve the same fundamental purpose as investment tools that can be used to grow and protect your money. Equities have a much greater potential for growth but also far more risk. A company’s valuation can increase dramatically due to a new product, service or patent. Bonds, especially treasury bonds (treasuries) or municipal bonds, tend to be far lower risk since they are backed by the U.S. government or a municipality.

Although bonds may not be risky, there’s also not a lot of reward. You get a little bit of interest on the debt you own and a guarantee that you’ll be paid the principal. You know exactly what you’re getting at the end of the term when you buy the bond. Stocks are very different. Some companies might crash and burn while others grow exponentially. They’re never guaranteed.

Is There a Difference Between Stock, Shares and Equities?

Not in the way the terms are frequently used in modern parlance.

The idea of equity – like the equity in your home – and equities as stock are essentially the same concept. The equity you have in your home is the value that you own. If your home is valued at $300,000 and you still owe $100,000 on your mortgage you have $200,000 of equity.

From a financial standpoint you don’t really own your entire home until it’s totally paid off, just like when you buy a share of stock you don’t own the entire company – you just have some equity.

Even the greatest bond advocates will admit the chance for hitting it big is non-existent with bonds, but they are one of the safest investments. Investing in bonds may be an effective way to insulate your portfolio from market volatility, downturns or crashes. Some people who are retiring or are about to retire begin reallocating their assets into bonds to minimize their risk.

However, not all bonds are inflation proof. Equities are usually a better way to protect your money from inflation since the market tends to do better during periods of high inflation. High-dividend stocks might decline temporarily, and markets can become more volatile, but valuations tend to rise to keep pace with the dollar’s buying power.

Bonds are generally static. The terms, rate and principal on a 10-year treasury note remains static regardless of inflation or deflation during that 10-year period.

There are Treasury Inflation-Protected Securities (TIPS) that are designed to protect against inflation. The principal of a TIPS bond is adjusted based on inflation as measured by the Consumer Price Index (CPI). You are either paid the adjusted principal or the original principal depending on whether there’s been inflation or deflation (you’ll always be paid the larger of the two).

That doesn’t mean TIPS are risk free. The Treasury sets a floor on TIPS value but there are scenarios in which deflation causes traditional treasury bonds to outperform TIPS.

 are uniquely personal and should be based on factors like the size of your nest egg, personal risk tolerances and the lifestyle you envision. The right 

 for one retiree might be completely different from another.

 in Phoenix and Tempe have dedicated their careers to giving honest, transparent advice on retirement planning and investment management. Your best interest is always our highest priority. Give our team a call at (623) 974-0300 to 

 What Are the Differences Between Stocks and Bonds? 

Most savers are contributing pre-tax dollars to their traditional IRA. A Roth IRA lets you contribute post-tax dollars. A person who leaves their job can roll their employer-sponsored 401(k) into a rollover IRA without paying taxes on the funds. 

Why Do You Have to Roll Over Your 401(k) After You Quit or Get Laid Off? 

You don’t – at least not always. Whether you will be forced take any action with your 401(k) after losing a job or finding a new job depends entirely on the employer or management company’s rules and the size of your 401(k). 

If your 401(k) is under $5,000 you may be forced to move that money into an IRA. However, the company is legally required to help you set up a rollover IRA if you have between $1,000 and $5,000 in the account. If you have less than $1,000 in your 401(k) the company may just send you a check. 

Rolling over any disbursements you receive into a retirement account is the only way to avoid having the money taxed as income, plus being forced to pay the 10 percent early withdrawal penalty the IRS will levy on the money. 

If you have more than $5,000 in your 401(k) when you leave your job you will likely be able to leave the money there indefinitely. However, there are some potential drawbacks for parking a 401(k) with an old employer: 

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