The Fed Raised Rates.

What Should Investors Do Now?

Friday, September 25, 2028

The Federal Reserve raised its benchmark interest rate by a quarter of a percentage point last week, bringing its target range to 3.75%–4.00%. The decision was unanimous. The Fed described an economy growing at a solid pace, with resilient consumer spending and inflation that remains elevated.

That news naturally raises questions. Will interest rates go higher? Should investors move more money into cash? Is it time to change bond holdings or reduce stock exposure?

Those are reasonable questions, but a single Fed decision cannot answer them for every household. The useful starting point is to ask what each part of your money needs to accomplish.

Give cash a purpose

Higher short-term rates can make savings accounts, money market funds, and Treasury bills appealing. Cash is especially valuable when it is reserved for an upcoming expense or an emergency. If you expect to need money soon, you should know where it will come from without having to sell a long-term investment at an inconvenient time.

There is also a point at which holding more cash can work against a plan. A competitive yield today does not guarantee the same yield when a short-term investment matures. And although cash may feel steady, its purchasing power can still be eroded by inflation.

This is a good moment to review how much cash you hold and why. The answer may be different for someone drawing income in retirement, a business owner anticipating a large expense, and a younger investor saving for a goal decades away.

Review bonds for the job they need to do

Bonds deserve a closer look whenever rates move. Generally, when market interest rates rise, the value of existing fixed-rate bonds falls. Bonds with longer durations tend to be more sensitive to those changes.

For a client drawing income, a carefully considered mix of shorter- and intermediate-term maturities may offer a way to balance current income with interest-rate risk.

That does not mean bonds have lost their place in a portfolio. They can provide income, help fund known expenses, and serve as a counterweight to other investments. The question is whether the bonds you own match the time frame for which you need them.

For a client drawing income, a carefully considered mix of shorter- and intermediate-term maturities may offer a way to balance current income with interest-rate risk. Someone with a longer time horizon may make a different choice. We should also look beyond a bond’s stated yield to its credit quality, maturity, and role in the full portfolio. The highest yield is not automatically the best fit.

Revisit borrowing decisions

A rate increase matters on both sides of a household balance sheet. It can change the cost of a new mortgage, business loan, or other financing. It may also affect payments on existing variable-rate debt.

If you are planning a major purchase or carrying a loan whose rate can change, review the payment in the context of your broader cash flow. How much room does the budget have if borrowing costs remain elevated? Would paying down debt compete with another important goal, such as maintaining an emergency reserve?

These are planning questions, not predictions about the Fed’s next move. A sound borrowing decision should be manageable under more than one interest-rate outcome.

Keep stock decisions tied to long-term goals

The Fed’s move is important, but it is only one influence on stocks. Company earnings, valuations, economic growth, and investors’ expectations all matter. By the time a widely anticipated rate decision is announced, markets may already have accounted for much of it.

For that reason, we do not believe a quarter-point increase calls for a wholesale change in a long-term stock allocation. A portfolio should reflect the investor’s goals, need for growth, time horizon, and ability to tolerate risk. Those factors rarely change overnight because of one policy announcement.

Repeatedly shifting between stocks and cash in an effort to anticipate each Fed meeting can make it harder to stay invested for the goals that matter most.

That does not mean ignoring what is happening. If market movements have pushed a portfolio far from its intended allocation, rebalancing may be appropriate. If a client’s circumstances have changed, the plan may need to change as well. But repeatedly shifting between stocks and cash in an effort to anticipate each Fed meeting can make it harder to stay invested for the goals that matter most.

Turn the headline into a review

At Riverfront Capital Strategies, we see this rate increase as a reason to check the working parts of a financial plan:

• Is there enough cash for near-term needs, and is excess cash being held for a clear reason?

• Do bond maturities and interest-rate sensitivity fit the client’s spending plans?

• Have higher borrowing costs changed the math on an upcoming decision?

• Is the portfolio still aligned with its long-term target?

The answer will not be identical for every client. Some plans may call for an adjustment. Others may confirm that the best course is to stay invested at the established long-term allocation.

The Fed will make future decisions as economic conditions develop. Investors do not need to know the outcome of every meeting to make thoughtful decisions today. They need to understand what their money is for, when they will need it, and how the pieces of their plan work together. That is where clarity creates confidence.

As always, if you any questions please reach out.

M. Grant Pannell, RCS Financial Advisor

(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.)