Preparing for an Increase in Interest Rates Accounting (Essay Sample)

Preparing for an Increase in Interest Rates
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Preparing for an Increase in Interest Rates
The journey of economic recovery seems to be taking so long around the world. With that regard, many market analysts have warned about the foreseeable rise in interest rates. An increase would mean that investors are likely to miss out on the chance to heighten their monthly earnings. In fact, anyone with a huge mortgage will be affected by the initial hike in interest rates. Therefore, people should start preparing for the predicted rise, which is likely to have dreadful impacts. With that in mind, there is a need to evaluate one’s risk profile and determine the best ways to prepare for the forthcoming increase in interest rates by reallocating, shifting, or diversifying their investment portfolios.
First of all, reallocation of investment portfolios is one of the best ways to prepare for a hike in interest rates. One can lower bond allotment based on their risk profile in the short-term period, which is regarded as a tactical approach that works well for equities. After that, one can supplement the reduced earnings or heighten them by investing in stocks that give dividends as gains (Ihrig, Meade, & Weinbach, 2015). In fact, an individual should look for firms that have efficient records of regularly releasing income on capital. Another way of reallocating investments is to consider the bond ladder whereby one can purchase those that mature at consistent intermissions. In effect, a rise in interest rates would mean that each one of them is reinvested at the same time. One can also look for high-yielding bonds that are deemed rewarding in a situation where the economy is on its road to recovery (Carlson, & Millington, 2017). In this case, companies strive to settle debt obligations.
Additionally, refinancing has been regarded as one of the most reliable ways of preparing for an increase in interest rates. Indeed, while lower charges have worked well for borrowers in the current times, mortgage bills are expected to heighten in the future (Malkiel, 2015). With that in mind, it is now time for individuals to invest in new homes and explore other financial options. Moreover, one can consider going for a fixed rate mortgage, which would provide two factors of monetary safety. One of them is that the one’s payments would be structured only for the period of the investment. The second one is that one does away with the pressure of worrying about the hiking interest rates (Malkiel, 2015). With that regard, people should think...