Skip to content
Link copied to clipboard

In likely event of interest-rate raise, diversity is best protection

Between now and the end of the year, Federal Reserve Chair Janet Yellen is probably going to raise interest rates, even just slightly. And that could jar both the stock and bond markets in the short term.

Between now and the end of the year, Federal Reserve Chair Janet Yellen is probably going to raise interest rates, even just slightly. And that could jar both the stock and bond markets in the short term.

What's the best defense? "A disciplined, diversified portfolio is the best protection," says Rick Pitcairn, chief investment officer of Pitcairn, based in Jenkintown.

The S&P 500 currently trades at a 17-times multiple of forward earnings, which "isn't extreme. But since 2011, we haven't seen a serious market decline," Pitcairn said. Even with a downdraft of 8 percent to 10 percent, he still sees high single-digit returns in stocks.

Worries right now include Greece and China, as well as a rise in interest rates.

"When is the rate rise taking place? How will Yellen orchestrate that? That's the most important thing to us," he says. Pitcairn believes that the central banker will raise rates in the fall.

"The narrative about Yellen as this deeply ideological dove dragged into a rate raise isn't the case. The reality among Fed watchers is she's a pragmatic, data-dependent leader."

Pitcairn has been advising clients to sell down fixed-income portfolios, in some cases to as little as 10 percent of holdings. Ten years ago, fixed income represented 30 percent for some clients, and it's now 10 percent, he notes.

"Right now, the most expensive thing in many portfolios is fixed income."