Rate Hike: Investors Say They're Ready

As we wait to find out if the Fed will raise rates at its December meeting later this week, we asked our readers what an uptick in interest rates would mean for their personal financial situations.

It's a reality that interest rates will eventually go up—after all, they have nowhere else to go from current levels. But most readers said they don't expect things will change for them all that much, at least in the near term. Many respondents said that they don't expect rates to increase by too much, too quickly; therefore, they don't really expect the yields on savings accounts, money market funds, and bank CDs to spike into juicier territory any time soon.

Others said they don't expect major pain even from their bond holdings, as their overall bond duration exposure is fairly short. A few readers also also noted that their financial situation as a whole is somewhat insulated from the effects of higher rates because their mortgages are paid off or they have fixed-rate loans.

To read the complete thread and weigh in yourself, please click here.

'No dramatic change.' Many readers said that they expect rates to increase in fairly small increments, and at a measured pace. Consequently, they don't expect that rising rates will have a major impact on their financial situation, at least in the near term.

"As I believe that any interest-rate increases will be gradual, I anticipate no dramatic change in my financial condition," said seaside1. "My CDs are laddered and, as they mature, it is true that I will receive higher rates on my savings. However, since I hold a diversified portfolio, I don't anticipate financially gaining much initially from increased interest rates."

"Not much," said Dr. Bobb. "The expected increase is too small to be material."

"I'm not convinced that savings rates will go up as much as Fed increases. The banks/money market funds, etc. will use these Fed increases to fatten their bottom lines for a goodly while before passing along any significant increases to their customers. These financial firms have been eating significant losses these last several years; shareholders want to see increased bottom-line figures. CDs may rise a bit; the better savings rates will probably be at online banks and credit unions," said BoomerGuy.

"In all honesty, I don't think a 25-basis-point or even 100-basis-point increase over the next year or so will greatly impact the economy. Therefore, I don't think that they will impact my equity investments," said BMWLover. I may take a little hit on my preferred stock and bank-loan fund that we own, but the flip side is that we'll earn something on our cash. The bottom line, I don't think the Fed will move too quickly or too dramatically, so I don't see it impacting our investments all too much."

BoomerGuy said: "The effect on equities will be minimal for me as I am a long-term investor (even at 69!!); not dependent on my portfolio for income. As to the market, I believe Wall Street has already factored in at least a 25-basis-point, maybe even 50-basis-point, jump this month. The former appears to be more likely. The world will not end when it happens!"

'I think rising rates will be a net positive for us.' Other readers are a little more sanguine--pointing out that (eventually) higher interest rates will benefit their financial situations. Many of these readers pointed out that any improvement in yields on savings vehicles--however small--would be welcome.

Stillers noted that it's difficult to definitively answer the question without knowing when and by how much rates will increase; however, this reader added that "from a very broad-stroke perspective, I think rising rates will be a net positive for us as we will inch closer to our ultimate financial goal that we used to aspire to as kids--you know, that old-school saying of 'living off the interest.' "

"I am looking forward to it, as long as the rate increases are gradual and not too disruptive, said dawgie. "The yields on bonds, money markets, and other relatively safe sources of fixed income are ridiculously low, providing little incentives for savers. You are forced to either take more risk than may be appropriate, or settle for returns that do not keep up with inflation."

Reti59 said: "It would be a net positive because, finally, I will be getting an increase in interest income in my savings and emergency/life-happens accounts."

Though Chief K expects only a very small impact in 2016, this reader notes that "bond income may play a larger role in my portfolio's total return" in 2017 and beyond.

"Income investors in high-quality actively managed OEFs--and in particular more flexible CEFs--will enjoy relatively stable NAVs and increasing distributions as managers exploit asset-swap opportunities and replace maturing lower-rate holdings," said capecod.

'Short-term bonds will take a small hit at first.' Finally, some readers said that although their bond holdings may feel some pain in the short term, their portfolio's overall duration exposure is on the shorter end, so they expect the impact to be muted.

"Short-term bonds will take a small hit at first. [The ones I own] are short-duration; I'm not worried about any huge hit. By the middle/end of 2016, short-term bond prices should be back to 'normal.' I only use bond funds/ETFs to make a bit more money than a money-market investment for my cash. As long as I stay ahead of that, I'm happy. Short duration is the key for me," said BoomerGuy.

"Duration fairly short, so not very concerned," said Peter5.

"Those who bought long-term bond funds to get 1 or 2 percentage points of interest will be big losers. We will be seeing big capital losses on long-term bond funds," said JohnWills. "Many retirees who depend on interest from money market and CDs for part of their income will be helped by an increase in interest rates."