How the Fed’s Rate Hikes Affect Investors

A recent Vanguard blog addresses the issue of the Fed’s ongoing rate hike program and how it will affect investors. Here are highlights:

“Higher yields on cash are good news for savers”—the article notes that since the Fed started raising rates in December 2015, investors have moved more than $60 billion into money market funds, and those inflows could rise with further rate hikes.

Mixed outlook for bonds—”Bond investors might cringe at our outlook for rising rates but, in truth, the short-term pain experienced when rates rise is offset by higher future returns. We also expect fixed income assets to provide increased portfolio diversification benefits as interest rates continue to normalize.”