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What Fed Rate Hikes Mean For Retirement Accounts Today

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Whether you’re into finance and investing or not, you need to know a few things about today’s economic climate. For one, it’s not good in the sense that there’s a lot of uncertainty. Something big happened today related to the economic climate too.

The Federal Reserve has been talking about raising interest rates in September for some time now. Well, they raised the rate today by 0.75% leaving it in the range of 3.0% to 3.25%. We’re likely to see another jump here in the near future too. That’s another jump that’s certainly not good for retirees who count on their investments today.

But What Does It Mean For Millions Of Retirement Accounts?

For those of you living on a fixed income, this is bad – REAL BAD.

Now, for the folks who are not quite settled into retirement, the short-term will sting but not nearly as much. That said, here’s what you all need to know about what happened with the rate hike and how it’s likely to affect you.

Stocks & 401ks Will Fall

There’s a good chance that the rate increases will have a negative impact on our stock portfolio and 401k plan. This seems to be predictable at least in the short term.

Now, this will not be a permanent thing, so if you’re young, you’ll be able to stomach this as things will smooth out over the years. But if you’re retired and counting on the interest from these investments, hold on to your hat and tighten up your spending! It might be a slow Christmas too.

The good news is that if they see things start to get really bad, the market will try and correct itself, eventually forcing the fed to make another move here to fix things.

I expect stock growth to be non-existent over the course of the remainder of the year. If you’re in a pinch, speak with your financial advisor, but don’t just start selling because things are tanking. That reaction will not help you win in the long run.

Bond Yields Will Improve

Now, some good news for retirees who put their faith in bonds. You’re likely to see bond yields continue to improve as time progresses.

The income yield has been improving after hitting a five-year low. So, you can thank the Fed for helping revive those for you due to the interest rate hikes.

Expect Short-Term Investment Losses

If you’re working for a company and contributing to your 401k each pay period, don’t stop just because things are looking bad. I mean, sure, you could think about investing in gold instead, but that’s your choice whether to do so or not.

The important thing here is that short term you might see losses, but you need to remember that what counts is when those losses are realized. Now, for the people who need to realize these losses today i.e. the older folks, I’m sorry, but it doesn’t look good at all. Hopefully, things will change in the near future, but it’s unlikely to fix itself overnight.

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Edwin Cannon has spent his entire career in the financial industry and specializes in alternative investments and surviving marketing turbulence. He started My Retirement Paycheck to help educate consumers about retirement investment options that aren't typically introduced by advisors.

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