Interest rates rise likely to increase market volatility

Question:  Interest rates are expected to rise at some point this year, and with that increase, there’s likely to be increased volatility in the equity market.

Given that environment, what types of investments should individual investors consider if they’re seeking a return greater than what a CD or money market account would offer? 

Answer:   Typically, fixed income prices (e.g. bonds, treasuries, etc.) tend to decrease as overall interest rates rise.

However, there are certain kinds of income-producing investments whose prices may not be as volatile should rates begin to rise and could potentially offer higher current income (e.g. floating rate bonds, high yield bonds, and Treasury Inflation Protected Securities “TIPS”, etc.) 

While typically more volatile than bonds, there are many stocks whose dividends (income stream), have risen faster than inflation. 

Question:   Many sophisticated investors make investments in riskier asset classes to generate returns that outpace those of the stock market and traditional investments. What is your view on alternative investments, and do they have a place in the individual investor's portfolio?  

Answer:   Often, when one asset class (i.e. one kind of investment) increases, another decreases. Stocks and bonds, for example, often behave this way. 

Because of this relationship, allocating a certain percentage of one’s portfolio to stocks and a certain percentage to bonds, potentially reduces volatility of the overall portfolio. 

Sometimes—like in 2008—stocks and bonds can both decline together. 

Alternative investments are those that do not necessarily increase or decrease in relation to stocks or bonds. 

For example, some alternative investments increased in value during the financial crisis. 

Adding alternatives to a portfolio may help create additional diversification. This in turn could potentially give the portfolio a “smoother ride”. Alternative Investments can be complex, so it’s important to match the right investment with an investor’s specific objectives. 

Question: What type of alternative investments are easiest for individual investors to invest in and which may also offer some risk mitigation?

Answer: All these alternatives fall into their own specific framework. There are specific rules governing who is allowed to invest in them. Typically they are for higher net worth investors with extensive portfolios in need of additional diversification.


Securing a comfortable retirement is a ubiquitous goal for many investors.