Yesterday’s testimony by Fed chair Ben Bernanke makes it clear that QE is here to stay for the foreseeable future. Rather than tilt at windmills, you need to accept this fact, and adjust accordingly.
Here are a few of the things that you should be doing in response to zero interest rate policy:
• Refinance your home, locking in a 30 year fixed rate (if you can afford a 15 year fixed, do that). This is a no-brainer and the best way to take advantage of zero rates for most families.
• Shorten the duration of your bond holdings. Rates will go up eventually, so those 10 year durations and longer should be 7 years max.
• Evaluate your risk assets: Since the March 2009 lows, stocks are up over 100%. If you participated in most or all of this, congrats. If you completely missed a move where equities doubled, you need to think about why. Perhaps its time to make suitable changes.
• Anticipate and plan for the next correction: Monday’s 2% whackage should have made you think about what the next 10-20% move down will be like. What should your response be? What is it more likely to be? Anticipating panic decision-making in advance helps you avoid the worst of it.
• Reduce/renegotiate any outstanding consumer debt. This is the worst sort of debt, used to pay for depreciating baubles. If you must, refinance it at lower rates.
• Are you a trader or an investor? Make the appropriate plans for your own timeline. Traders don’t hold losers after their prices drop; Investors don’t flit in and out of markets.
Remember, review the emergency procedures in the card (seat back in front of you) when you are on the ground — not after an engine flames out at 30,000 feet.