The Fed. Raises Key Interest Rate

They said they were going to do it and they finally did.

On Wednesday, December 16th, The Federal Reserve raised its key interest rate from a range of 0% to 0.25% to a range of 0.25% to 0.5%.

The rate hike is a good sign and illustrates how much the economy has healed since the Great Recession.  The increase signals that the central bank believes the U.S. economy is strong now and no longer needs the support that the lower rates were providing.  This is a good sign that we have recovered from the Great Recession.

While this is all well and good, you probably want to know:  How does the Federal Reserve’s interest rates hike affect my long-term retirement investments?

The key word is long-term.  While in the short term there’s a chance for ongoing volatility in both the bond and stock markets, your long-term retirement investment should not be negatively affected.   

That doesn’t mean it’ll be easy to ride out the volatility.  One strategy that can help is to focus on what you can control. Here are some tips to help you do just that.

REVIEW YOUR INVESTMENTS.  This is a GREAT time to review your investments.  Do your investments still match your Risk Tolerance and Time Horizon? In the coming year we will be meeting individually with our plan participants to review their account and make sure their investments are in line with their retirement goals.  The key is to know what you own.  What is your bond exposure? Is it all Treasury bonds? Is it a mix? How is your asset allocation? Once you know what you own, you can realign your investments with your goals taking into account the current economy. 

DON'T TIME THE MARKET.  This is always a failing proposition.  Those of you who have attended our Retirement Seminars may remember the chart that shows the high percentage of investors who got out of the Market at the lowest point and jumped back into the Market at the highest point during the Great Recession.  Did you know that investors who dropped $1,000 in the S&P 500 at the beginning of 2008 and again at the start 2009 were back in positive territory by the end of 20091? In the meantime, those who stayed in the Market did suffer steep losses as stocks plunged during the financial crisis, but they also enjoyed a dramatic rebound in U.S. stocks as the system stabilized. The S&P 500 is up over 200% since the bottoming out in March 2009.2  The lesson to be learned: your retirement account is a long-term investment and trying to time the Market will only negatively impact your account.

BE PREPARED. Stocks may trade sideways in 2016.  With the recent interest rate hike, as well as the upcoming presidential election, the Market could see some ups and downs next year or may not move much at all.  Financial experts forecast that the total return for the broader stock market will be about 3 percent3

Don't fret about where the stock market will be next week or next month, and stay focused on your longer-term investment goals.  Stocks will still probably offer the best long-term returns for your retirement portfolio — and interest-rate are a good sign - the economy is getting better, and a better economy is good for the stock market.

SEEK PROFESSIONAL HELP.  If you are feeling uneasy about the current Market, seek professional guidance before making any changes to your retirement account.  Having all of the pros and cons laid out before you make any changes to your account will allow you to make an educated choice.  Talk to us. Know the facts.

We want to wish everyone Happy Holidays and a Prosperous and Healthy New Year!


[1] financial technology firm, CircleBlack.


[2] CNN MONEY, Alarmed by stocks? 5 charts break it down,  Heather Long.


[3] Goldman Sachs chief U.S. equity strategist David Kostin.

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