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Retirees should consider adjusting their portfolios to a rising rate environment

Retirees should consider adjusting their portfolios to a rising rate environment

For stable income generation and to lower the risk of their investment portfolios, retirees rely heavily on bonds. Some are concerned about the negative effects of tighter monetary policies on retirement portfolios, as the Federal Reserve is planning multiple interest rate increases this year.

CNBC reports that Jerome Powell, the Chairman of the Federal Reserve, predicted a series rate hikes this year and reduced pandemic-era supportive measures from central bank to combat rising inflation. CNBC reports that December’s increase was 7% year-over year. This is the fastest pace since 1982.

Bond investors are concerned by the increased rate outlook. Bond prices tend to have an inverse relationship. Higher rates equal lower bond values. This situation is also known as interest risk.

For example, a $1,000 10-year bond with a 3% coupon will still pay 3% but the bonds value could drop to $925 if the market interest rates rise to 4.4% in a year. This price drop is expected because new bonds would have a more attractive coupon of 4%. Older bonds with lower coupons would become less appealing, so buyers would demand a reduced price.

Brad Lineberger, a certified financial planner, is president of Seaside Wealth Management in Carlsbad, California. He warned that investors will sell their current bonds to get higher-paying ones. This would cause overall prices of debt to fall due to the new supply.

Also, the duration is important. The longer a bond’s duration, the more sensitive the debt security will be to interest rates or a steeper fall-off in its price.

Paul Winter, a CFP, and owner of Five Seasons Financial Planning, Salt Lake City, suggested that investors concerned about rate risk should consider bond funds or bonds with shorter durations to limit pullback.

Winter explained to CNBC that bonds with lower coupon rates and credit quality are less sensitive to higher interest rate, all other factors being equal.

ETF investors have an option to manage their risk and still generate income.Nationwide Nasdaq 100 Risk-Managed Income ETF, which seeks current income with some protection against the downside.

NUSI employs a rules-based options strategy to generate high income. This strategy uses the Nasdaq-100 Index (an index of the 100 biggest non-financial stocks) on the Nasdaq exchange. The ETF could be used as a hedge or to complement traditional fixed and equity income allocations.

The Nationwide Risk-Managed income ETF uses a collar strategy in order to generate monthly income. Collar strategies allow you to hold shares of the stock while also buying put options that protect the security and writing calls for it. A put option grants its owner the right, but not obligation, to sell the asset at a certain price and at a given date. A call option gives its owner the right, but no obligation, to buy the asset instead.

Visit the website for more news, information, or strategy.Retirement Income Channel.

This article was prepared as part of Nationwide’s paid sponsorship of ETF Trends.

When investing, you should consider the risk profile of ETFs, hedge fund, equities and bonds. All investments involve risk and could lose value. Investing can lead to loss of principal and other risks. ETF shares can be bought and sold at the market price (not NAV), and may trade at a discount, or premium to NAV. They cannot be individually redeemed from a Fund. Brokerage commissions can reduce returns. The Fund’s return may not match or achieve a high degree of correlation with the return of the underlying index.

To request a summary prospectus or a prospectus, call 1-800-617-0004. You can also download the prospectus by clicking the link or visiting These prospectuses provide information about investment objectives, risks and charges, as well as other information that you should carefully consider before making an investment.

KEY RISKSThe Fund is subject to the risks of investing in equity securities, including tracking stock (a class of common stock that “tracks” the performance of a unit or division within a larger company). A tracking stock’s value may decline even if the larger company’s stock increases in value. The Fund is exposed to foreign securities risks (currency fluctuations and political risks), as well as limited information and limited availability. The Fund may invest in aggressive investments, such as derivatives, which can create investment leverage and illiquidity, and are highly volatile. The Fund uses a collared options strategy. This strategy, which includes call and put options, is speculative. It can result in losses due the adverse movements in price or value of the reference assets. The success of the Fund’s investment strategy may depend on the effectiveness of the subadviser’s quantitative tools for screening securities and on data provided by third parties.

See Also

The Fund plans to invest a portion its assets to replicate an index. The Fund’s performance and index performance could be affected by Fund expenses. Also, the Fund may not invest fully in index securities or may have securities that are not included in the index. To rebalance its market exposure, the Fund may frequently buy and sell portfolio securities or other assets. Higher portfolio turnover can lead to higher transaction costs for the Fund as well as greater tax liabilities for shareholders. The Fund may focus on specific industries or sectors, which could make it more volatile than other ETFs. The Fund may hold large positions in a small number of securities, and an increase or decrease in the value of such securities may have a disproportionate impact on the Fund’s value and total return. The Fund will not invest in all securities and instruments. Additional risks for the Fund include: Foreign investment risk, correlation risk and derivatives risk.

Nasdaq-100 Index: A rules-based, market capitalization-weighted index of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange.

Duration – a measure of the sensitivity of the price of abondor otherdebt instrumentto a change ininterest rates. A bond’s duration is easily confused with its term ortime to maturitybecause certain types of duration measurements are also calculated in years.

Coupon – the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.

Nationwide Fund Advisors is the registered investment advisor for Nationwide ETFs. They are distributed by Quasar Distributors LLC. NFA is independent of any distributor, subadviser and index provider contracted by NFA to distribute the Nationwide ETFs.

Nationwide Mutual Insurance Company is proud to use the service marks Nationwide, Nationwide N and Eagle, and Nationwide is on Your Side. 2022 Nationwide.

Tom Lydon’s views and forecasts are only his opinions. They may not come to fruition. This site should not be construed or used as an offer to purchase, solicitation of an offer for sale, or recommendation for any product.

MFM-4510AO; Q-20220125-0273

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