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I feel it's like time to change my investment strategy and diversify my current stock investments (mostly tech companies). Any recommendations on mutual funds or stocks that will benefit when interest rates go up?

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The US economy can't handle higher rates. After the financial crisis the Federal Reserve intentionally pushed rates to z... (more)

brettdoyle (Oct. 02, 2016 @ 10:41a) |

Looks like buying WFC and other bank stocks on Monday was a good move. Bank stocks are moving up due to bond yields.

docjoo (Oct. 05, 2016 @ 11:15a) |

you think the turbulence with WFC in particular is over?

imbatman (Oct. 06, 2016 @ 7:24a) |

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docjoo said:   I feel it's like time to change my investment strategy and diversify my current stock investments (mostly tech companies). Any recommendations on mutual funds or stocks that will benefit when interest rates go up?
  Banking sector will move up

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Value of existing bonds will fall, so the funds shorting the current bond market will mirror a rise.

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If they raise rates, get ready for a shit storm. The system can't handle a true rate increase.

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Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike.  Any answer you give has strong arguments pro and con.

If you're young, buy and hold a simple, diversified portfolio and forget about it...  Anything else is gambling.
 

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phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike. 
Exactly!  The market prices are based on current expectations for future events.

If rates increase faster or higher than expected, then X is likely (like bank stocks doing well).
If rates still increase but are increased at a lower pace than they are expected, then the opposite can happen.   Whether the rates rise or not is not that important -- What's important is when they rise and how much.

Interest rates also are only one of many factors in the economy and the stock market values.  So looking at the change in a vacuum by itself is useful only as a theoretical question, but it's silly to expect the actual future events to follow whatever you come to expect.

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prostoalex said:   Value of existing bonds will fall, so the funds shorting the current bond market will mirror a rise.
  Could you recommend some funds that shorts the current bond market?

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Bend3r said:   
phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike. 
Exactly!  The market prices are based on current expectations for future events.

If rates increase faster or higher than expected, then X is likely (like bank stocks doing well).
If rates still increase but are increased at a lower pace than they are expected, then the opposite can happen.   Whether the rates rise or not is not that important -- What's important is when they rise and how much.

Interest rates also are only one of many factors in the economy and the stock market values.  So looking at the change in a vacuum by itself is useful only as a theoretical question, but it's silly to expect the actual future events to follow whatever you come to expect.

  So if I am expecting the rates to increase at a slow incremental pace, then I should stay away from bank stocks?

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Quick reminder: 99% probability that the fed isn't going to raise rates until after the election.

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anusha123 said:   
docjoo said:   I feel it's like time to change my investment strategy and diversify my current stock investments (mostly tech companies). Any recommendations on mutual funds or stocks that will benefit when interest rates go up?
  Banking sector will move up

  Looks like the current bank stock prices are factoring near term rate increase. So do you feel that bank stocks can go up higher if 1/4% interest hike is announced before the end of year?

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docjoo said:   
  So if I am expecting the rates to increase at a slow incremental pace, then I should stay away from bank stocks?

Only if the expectations you have are at a slower incremental pace than "the market" already has priced in. ("slow" is a relative word ). How do you know what rate increase expectations are priced in? Good question.


And there's still the caveat that there are infinite other factors that can change over the same time period.  But it's impossible to adjust for all possible factors.

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RealEstateMatt said:   Quick reminder: 99% probability that the fed isn't going to raise rates until after the election.
  That was true about a month ago. Now, it's about 50% probability according to most experts.

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phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike.  Any answer you give has strong arguments pro and con.

If you're young, buy and hold a simple, diversified portfolio and forget about it...  Anything else is gambling.

  What age do you consider young?
Wish I gambled on AMZN. Saw it on CNBC that Amazon returned more than 4,000% since IPO.

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docjoo said:   
phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike.  Any answer you give has strong arguments pro and con.

If you're young, buy and hold a simple, diversified portfolio and forget about it...  Anything else is gambling.

  What age do you consider young?
Wish I gambled on AMZN. Saw it on CNBC that Amazon returned more than 4,000% since IPO.

  And I wish I gambled on the powerball. Saw on CNN that some crackpot with 1 arm and a camouflage t-shirt returned more than 1,000,000,000% on his investment. If only I went all in on that. 

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docjoo said:   
phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike.  Any answer you give has strong arguments pro and con.

If you're young, buy and hold a simple, diversified portfolio and forget about it...  Anything else is gambling.

  What age do you consider young?
Wish I gambled on AMZN. Saw it on CNBC that Amazon returned more than 4,000% since IPO.

  

I wish I bought MSFT in 1986.   Its returned 100,000%   

 

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vnuts21 said:   
docjoo said:   
phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike.  Any answer you give has strong arguments pro and con.

If you're young, buy and hold a simple, diversified portfolio and forget about it...  Anything else is gambling.

  What age do you consider young?
Wish I gambled on AMZN. Saw it on CNBC that Amazon returned more than 4,000% since IPO.

  And I wish I gambled on the powerball. Saw on CNN that some crackpot with 1 arm and a camouflage t-shirt returned more than 1,000,000,000% on his investment. If only I went all in on that. 

  That crackpot probably orders everything on Amazon since he can't go out in the public

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jerosen said:   
docjoo said:   
phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike.  Any answer you give has strong arguments pro and con.

If you're young, buy and hold a simple, diversified portfolio and forget about it...  Anything else is gambling.

  What age do you consider young?
Wish I gambled on AMZN. Saw it on CNBC that Amazon returned more than 4,000% since IPO.

  

I wish I bought MSFT in 1986.   Its returned 100,000%   

 

It's good that Steve Balmer retired. Otherwise, MSFT would be like AOL.

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docjoo said:   
jerosen said:   
docjoo said:   
phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike.  Any answer you give has strong arguments pro and con.

If you're young, buy and hold a simple, diversified portfolio and forget about it...  Anything else is gambling.

  What age do you consider young?
Wish I gambled on AMZN. Saw it on CNBC that Amazon returned more than 4,000% since IPO.

  

I wish I bought MSFT in 1986.   Its returned 100,000%   

 

It's good that Steve Balmer retired. Otherwise, MSFT would be like AOL.

  
I guess I'm not up on the latest MSFT news.   What radical company changing things have they done in the past 2 years?

 

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jerosen said:   
docjoo said:   
jerosen said:   
docjoo said:   
phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike.  Any answer you give has strong arguments pro and con.

If you're young, buy and hold a simple, diversified portfolio and forget about it...  Anything else is gambling.

  What age do you consider young?
Wish I gambled on AMZN. Saw it on CNBC that Amazon returned more than 4,000% since IPO.

  

I wish I bought MSFT in 1986.   Its returned 100,000%   

 

It's good that Steve Balmer retired. Otherwise, MSFT would be like AOL.

  
I guess I'm not up on the latest MSFT news.   What radical company changing things have they done in the past 2 years?

 

  New CEO, Surface Pro 4, and Cloud service. Cloud service will contribute about 30% of MSFT revenue.

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docjoo said:     What age do you consider young?
Wish I gambled on AMZN. Saw it on CNBC that Amazon returned more than 4,000% since IPO.

  How old were you in 1998 (about the beginning of the dot com boom)?

If you are thinking in terms of individual stocks like company A did well in the last x years and wish I had shorted company B before the bad news came out, you are really going about it the wrong way. It is extremely hard to pick individual stock winners and losers. Looking at the rear view mirror may make you feel like you "knew" this would happen and you are good at picking up on those cues for stock picking. There are professionals who do this for a living and still come out with bad returns.

Stick with well diversified funds (MF or ETFs), preferably based on passive/index investing and invest for the long haul. If you really have the itch, use a small portion (< 10%) of your investible funds to play with.

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docjoo said:   
  New CEO, Surface Pro 4, and Cloud service. Cloud service will contribute about 30% of MSFT revenue.

+ successful subscription-based Office products instead of perpetual licenses like they were primarily before  

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docjoo said:     Could you recommend some funds that shorts the current bond market?
 http://etfdb.com/screener/#asset-class=Bond&inverse=true for ETFs and your brokerage's screening tool for mutual funds. Adjust to your own risk tolerance as well as specific bond classes you want to short.

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tessz said:   If they raise rates, get ready for a shit storm. The system can't handle a true rate increase.
Like the shit storm the phoney analysts predicted for brexit.

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Unless you feel you can predict interest rates, market and company risk, and are smarted than Warren Buffet, just buy IVV. Hedge it with call and puts if you want.

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Bend3r said:   
docjoo said:   
  New CEO, Surface Pro 4, and Cloud service. Cloud service will contribute about 30% of MSFT revenue.

+ successful subscription-based Office products instead of perpetual licenses like they were primarily before  

  
Its all good but its not the difference between MSFT being where they are and being like AOL.     They're very very very far from AOL's state.       I guess the AOL comment wasn't meant to be taken at all seriously.    
 

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docjoo said:   
jerosen said:   
docjoo said:   
phisher4 said:   Some say that a rate increase is already "priced in" to the stock market.  Some say the market will crash after a rate hike.  Any answer you give has strong arguments pro and con.

If you're young, buy and hold a simple, diversified portfolio and forget about it...  Anything else is gambling.

  What age do you consider young?
Wish I gambled on AMZN. Saw it on CNBC that Amazon returned more than 4,000% since IPO.

  

I wish I bought MSFT in 1986.   Its returned 100,000%   

 

It's good that Steve Balmer retired. Otherwise, MSFT would be SOL.

  FTFY

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No certainty rates are going to be substantially increased anytime soon. We may end up in a 20 yr cycle of extremely low rates for all we know. Look at Japan.

Anyone that's been shorting bonds over the last couple years has been taking it in the shorts.

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rascott said:   No certainty rates are going to be substantially increased anytime soon. We may end up in a 20 yr cycle of extremely low rates for all we know. Look at Japan.

Anyone that's been shorting bonds over the last couple years has been taking it in the shorts.

  It won't be a drastic rate increase, but Federal Reserve hinted at the last meeting that rate hike is around the corner. So my bet is that we will get a rate hike in December. 

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probably for 1/8 to 1/4 pt. If it happens.

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imbatman said:   probably for 1/8 to 1/4 pt. If it happens.
  It's also specified as a "range", so they could raise the upper limit of the range without actually changing anything immediately.   In reality they only raised the rate by ~0.2% to around  ~0.35% at the end of last year and then raised it another ~0.05% this past June to around 0.40% currently.  https://fred.stlouisfed.org/series/DFF

But the "rate" that they actually set usually is referred to as the top-end of the range.  The "rate" referred to by most was already at 0.25% before last Dec raise, and is now at 0.5%.   http://www.tradingeconomics.com/united-states/interest-rate

Nothing stops it from being an actual 0.05% increase every 6 months if that's what they want to do.  A 0.25% jump in the headline rate is not necessarily an actual 0.25% instant increase.

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RealEstateMatt said:   Quick reminder: 99% probability that the fed isn't going to raise rates until after the election.
  It's 100 percent. Next Fed meeting they can raise the rates at is in December.

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devyanks90 said:   
RealEstateMatt said:   Quick reminder: 99% probability that the fed isn't going to raise rates until after the election.
  It's 100 percent. Next Fed meeting they can raise the rates at is in December.

Not true.  While it is likely to happen in Dec, there is a meeting scheduled in Nov. They typically don't raise the rates in the meetings where there is no press conference scheduled after the meeting, but technically they can do it before election. Not saying it will happen, but there is 1% chance.

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I don't see how Yellen can continue to keep the rate down. She will have to raise it by end of this year or beginning of 2017. So it's time to change one's investment strategy based on the increased rate. I am looking into buying some bank stocks and companies with lots of cash. Looking into WFC since it's getting a good beating right now.

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delhel said:   
tessz said:   If they raise rates, get ready for a shit storm. The system can't handle a true rate increase.
Like the shit storm the phoney analysts predicted for brexit.

  
The US economy can't handle higher rates. After the financial crisis the Federal Reserve intentionally pushed rates to zero in order to create a "wealth effect" by causing asset prices to rise (that is precisely what Bernanke said).

This will work in reverse when interest rates ultimately rise. The "wealth effect" becomes the "poverty effect" when all the assets that were artificially inflated revert.
 

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Looks like buying WFC and other bank stocks on Monday was a good move. Bank stocks are moving up due to bond yields.

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you think the turbulence with WFC in particular is over?

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