Wells Fargo Investment Institute Co-Head of Global Fixed Income Strategy Brian Rehling, CFA® gives his perspective.

Transcript: Five Ways Rising Interest Rates Could Affect Investors

The Fed rate increase will have far-reaching economic impact. And a change in Fed rates could potentially affect investors in different ways. 

Here's five things to know about how a rate increase could affect you. 

First, there could be a boost in returns. After years of earning next to nothing on savings accounts, a rate increase could finally help your money work better for you. 

Second, you should be able to take less risk for income. If you're retired or about to retire, you've been concerned with generating income. And throughout the recent low-interest rate environment, yield has been hard to come by. With a rate increase, many traditional lower risk income-generating investments like CDs, may begin to earn higher returns again. 

Third, use caution when investing in long-term securities. When rates climb, bond investors should be careful not to have too much locked in long-term low yielding products. 

Next, look for equity opportunities. Just because interest rates go up doesn't mean the equity bull market is over. In fact, we expect some sectors like consumer discretionary, information technology and industrials to continue to grow. 

And lastly, yes, a rate increase means it will cost more to borrow money. But, then again, many people feel they can take on more debt as rates go up because they're more confident of their earning potential. 

There's no question a fed rate increase will have far-reaching economic impact. And, we believe the best way for investors to prepare is by staying informed. So, to find out more about how the federal reserve rate hike could affect your portfolio, please download our special report: Five ways rising interest rates could affect investors.

Now May Be a Good Time for Investors to Revisit Their Fixed-Income Strategy

  • Investors with allocations in cash and cash alternatives could see returns for risk-free assets slowly move higher.
  • Retirees and fixed-income investors may be able to take less risk to generate income from their portfolios.
  • Longer-term interest rates may move modestly higher; we recommend investors use caution regarding exposure to securities with long-term maturities.
  • Growth should continue in the equity market, but we expect increased volatility.
  • Borrowing costs are tied to interest rates and are likely to increase when interest rates rise.

To learn more, download Wells Fargo Investment Institute’s report, “Five Ways Rising Interest Rates Could Affect Investors.”