Some folks see rising interest rates as a signal to make a move. In a recent Wells Fargo survey of 1,007 investors, 37 percent said higher interest rates would make them very or somewhat likely to transfer money out of the stock market and into more conservative investments. This is up from 23 percent two years ago, when Gallup asked the same question.
Is this a good idea?
“While market timing seems like an attractive proposition, it actually requires a series of good decisions — when to get out and when to get back in again,” says Robert Johnson, president of the American College of Financial Services in Bryn Mawr, Pennsylvania.
Luke Orlando, a contributor to OneSmartDollar.com, says a JPMorgan analysis illustrates that if you missed out on the 40 best days of the market in the 10-year period they studied, your return would be negative. If you missed only 10 of those days, your return dropped from 9.85 percent to 6.10 percent. The biggest surprise, says Orlando: “The market’s best and worst days usually fall within a two-week period of each other. It’s impossible to separate them, and those who try may devastate their portfolio as a result.”
A better strategy is to rebalance your portfolio to keep your target asset allocation in place, says Johnson.
But if you insist, don’t put money in bonds yielding 2 percent, says Jordan Goodman of MoneyAnswers.com. Instead choose alternative investments that have much higher yields, such as commercial real estate income funds.
However, Johnson’s best advice: Keep investing in stocks, “whether the market is moving upward, downward or sideways.”