Fed policy effect No. 5: Making safe havens unsafe
Scott says many retirees are risk-averse and typically park a good percentage of their cash in "safe havens," such as savings accounts and CDs. But low returns are forcing many older Americans to wade into the more turbulent waters of the stock market.
Other retirees are buying bonds with the belief they are safer than stocks. But Scott says Fed policy may be creating 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," he says. "But with a rise in rates, these safe assets will lose value."
That's because when rates rise, bond prices fall. Investors purchasing new bonds with higher yields will shun existing low-yielding bonds.
Kubik agrees that safe havens are not what they used to be. He urges investors to consult with their financial adviser and create a plan for dealing with rising 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.
Moore believes the danger lurking in today's supposed safe havens presents a lesson that investors should remember in all markets.
"Safe-haven investments have never truly been safe," he says. "Investments that did well during one market downturn may do awful in another."