Should You Adjust Your Investment Strategy Following Fed Rate Hike?

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Attempting to ease the worst inflation in 40 years, the Federal Reserve raised its benchmark rate on June 15, its first three-quarter-point increase since 1994. It also raised concerns of investors wondering if they should sell off depreciating stocks and make wholesale changes to their portfolios.

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For certain, the economic picture of 2022 has been a lousy one, filled with sky-high inflation and consumer prices not seen in decades. However, many experts agree that selling off investments during times of economic crises is usually a losing proposition. Unless you are particularly adept at predicting the future, herding in turbulent times will likely leave you selling your assets when they are at absolute rock bottom.

Speaking to Money, Rob Williams, managing director of financial planning, retirement income and wealth management at Charles Schwab, said that the Fed’s fight shows a belief in the economy to right itself over time and that investors who hold a good asset mix and a willingness to ride out the tough times are usually in the best position to move forward in more certain times.

“The Federal Reserve is showing that they have more confidence in the continued growth of the U.S. economy,” Williams says. “The real bottom line is we don’t think people should make major changes to their portfolio if they’re invested for the long term and they have a diversified portfolio.”

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Diversifying your assets makes sense, but so does the way you trade, according to Barry Gilbert, asset allocation strategist at LPL Financial.

Aside from waiting for stocks values to rebound and, hopefully, enter a bull territory, there are minor tweaks an investor should be making to provide a bit of financial stability to their lives. Paying down any large variable rate debts or large credit card debt is one. Another is changing where you are saving your money.

Speaking to Money, Gilbert said, “That doesn’t mean suddenly go underweight whatever your stock allocation is or anything like that,” adding, “but if you’ve been more aggressive than you usually are, we might start the process of dialing it back down towards your baseline again.”

Related: 6 Alternative Investments To Consider for Diversification in 2022

According to CNBC, the Fed rates don’t directly affect savings rates. With major bank rates being so insignificant now, it would be worth your while to shop around for a savings account that will earn you more.

For those who have previously shied away from opening online savings accounts, now is the perfect time to look into them, as they can often offer customers a much higher rate then their brick-and-mortar counterparts.

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Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business, also recommended looking into U.S. government bonds as an opportunity to boost your savings in a turbulent economy.

Despite the caveats of a buying limit and not being able to take any money from them for at least one year, bonds are protected from inflation, are relatively risk-free and government-backed and provide an impressive yield — paying a 9.62% annual rate through October 2022, the highest yield since being introduced in 1998, according to CNBC.

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The next Federal Reserve policy meeting is on July 27 and it is expected to be followed by another 0.75% point hike announcement as Powell and the Fed attempt to finally ease the inflation rate without putting the U.S. economy into a recession.

Whether it works remains uncertain. There is no guarantee that things won’t get worse before improving. On a personal finance level, the best thing is often the simplest, or, as Williams said, “Sometimes long-term success is about discipline and small steps and not overreacting.”

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About the Author

David Nadelle is a freelance editor and writer based in Ottawa, Canada. After working in the energy industry for 18 years, he decided to change careers in 2016 and concentrate full-time on all aspects of writing. He recently completed a technical communication diploma and holds previous university degrees in journalism, sociology and criminology. David has covered a wide variety of financial and lifestyle topics for numerous publications and has experience copywriting for the retail industry.
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