federal reserve

6 reasons retirees love it when the Federal Reserve raises interest rates

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'Safe havens' become more attractive
No. 5: Making safe havens unsafe © Phovoir/Shutterstock.comm

'Safe havens' become more attractive

Many retirees are risk-averse and prefer to park a good percentage of their cash in "safe havens," such as savings accounts and CDs. Low returns have forced many of these older Americans to wade into the more turbulent waters of the stock market, Scott says.

Other retirees have been buying bonds in the belief they are safer than stocks. That means Fed policy may have fostered a bubble in the bond market that will burst once rates return to normal.

"For 30-plus years, bonds have been safe, and this seems ingrained in the minds of people," Scott says. "But with a rise in rates, these safe assets will lose value."

When interest rates rise, bond prices fall. Investors purchasing new bonds with higher yields will shun existing low-yielding bonds.

Kubik urges investors to consult with a financial adviser and create a plan for dealing with the eventual arrival of higher rates.

"The most important thing investors can do right now is ensure that they are properly positioned for the impending rising interest rate environment," he says.

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