By Reid Johnson, President, Lake Point Advisory Group

The investment world has changed. As Heraclitus put it so many hundreds of years ago – well before stock markets and interest rates – “There is nothing permanent except change.” It was true then, and it stays true now, especially in the midst of fluctuation.

With rising and volatile interest rates, more people are getting interested in where to put their money –but that’s not the question they should be asking. Instead, people need to be thinking about their long-term goals. Retirement, college tuition, paying off a mortgage, and otherwise creating a plan for the kind of financial security you want in life should be a top concern for anyone.

In 2018, your financial strategy should take into account the rising and volatile interest rates. For many of our clients, it’s an appropriate time to look at an alternative for bonds. As interest rates rise, bond values decrease. Bonds differ by maturity, coupon rate, type of issuer and other factors, so figuring out how your bond or bond portfolio will be affected by interest rate changes can be complex.

How will that affect you and your portfolio?

The longer the maturity of your bond investment, the greater the price volatility. The mature value of a long-term bond is based on future cash flows that are very distant points in the future. When interest rates rise, those cash flows are discounted significantly, resulting in the price of a long-term bond to fall.

Therefore, your investment Adviser should be looking at alternatives for bonds. Investors who are risk-averse will be seeking bond mutual funds that have average maturities of less than five years and will be avoiding zero-coupon bonds, particularly long-term ones.

Let’s assume you have a 30-year bond at a 6% coupon rate. If interest rates were to rise to 8%, your bond would decrease in value by 22.6%. If you want to be conservative and risk-averse, you should stick with short-term bonds and bond funds. Better yet, talk to your investment Adviser about how they work for your particular investment goals.

So where to put your money to keep it working for you?

We advise that clients look at markets that are performing well with mega cap companies that are producing increasing dividends. We find that 70% of companies who have historically seen increases will outperform companies who have historically been flat or decreased.

When making financial decisions like this, the best decision you can make is to sit down with a fiduciary Adviser. Ensure that your firm is a Registered Investment Advisery firm, or RIA firm. Firms like Lake Point Advisory Group are legally obligated to put their clients’ interests before their own.

Your financial future is too important to leave to chance. Let’s sit down and look at what you need to do in 2018 to create a sound financial strategy for the days ahead.

Reid Johnson is president of Lake Point Advisory Group, where he is dedicated to providing his clients with the professional and individual attention necessary to help them achieve their financial goals. To schedule a complimentary meeting with Reid Johnson or another member of Lake Point Advisory Group, please call 214.771.3363 or email service@lakepointadvisorygroup.com.