Schwab's team of industry experts regularly fields questions from investors across the country. Here, they share their views on what's top of mind with clients now.
Capturing higher rates
"Many clients have been wondering about the best time to lock in higher interest rates," says Collin Martin, CFA®, a director and fixed income strategist at the Schwab Center for Financial Research. "But trying to predict the future at the expense of present-day opportunities is rarely a winning strategy.
"If you're worried about locking in too soon, for example, you could create a 'barbell' in which you have bonds at the short end of the maturity spectrum—say, less than 18 months—and others with longer maturities of five, seven, or even 10 years. That way, you stand ready to reinvest the money from bonds that will mature in the next few months should interest rates rise, but you also can lock in today's relatively high rates with your longer-maturity holdings."
Navigating a "soft landing"
"There's no hard-and-fast definition, but economists generally agree a soft landing will be achieved if inflation comes down to the Fed's target of 2% without a big spike in unemployment or a major slowdown in economic output," says Kevin Gordon, a senior investment strategist at Schwab.
"That said, it takes a while before the full effects of higher rates are felt, so we may not truly understand the consequences of the current rate-hike cycle until early 2024. If labor stays strong, we're likely out of the woods; if unemployment rises sharply, we may be in for a harder landing.
"Investors worried about this uncertainty may want to consider tilting their portfolio allocations toward stocks that have high-interest coverage ratios, lots of cash on the balance sheet, and positive earnings revisions. Investors should also consider rebalancing more regularly."
Investing in AI
"Whenever a new trend emerges, clients want to get in on the ground floor," says Adam Lynch, a senior quantitative analyst at Schwab Equity Ratings®. "However, while many trends tend to fizzle out, artificial intelligence [AI] seems like it's here to stay; the challenge lies in figuring out which companies and industries stand to profit, and which may suffer as AI and our use of it evolve.
"The good news is that you may already have significant AI exposure through direct or indirect investments in the big-name tech firms. But if you're looking for targeted exposure, an AI or emerging tech-focused ETF could be another great way to invest without having to expend the time and effort on vetting individual stocks."
- Schwab's thematic stock lists use proprietary research to identify trends and generate curated stock lists. Log in to view the stock lists for Artificial Intelligence and more than 40 other themes at schwab.com/thematic.
- To search for AI-focused ETFs, log in to schwab.com/ETFscreener, select Fund Name under Basic Criteria, then enter "artificial intelligence."
Finding tax-free income
"A subject that's always a top concern for high-income clients, no matter the time of year, is where to find tax-free income," says Scott Hiller, a Certified Wealth Strategist® based in San Antonio. "Most people assume municipal bonds, whose interest payments are exempt from federal and often state and local taxes, are the best option.
"However, tax-free munis tend to offer a lower yield than taxable bonds, so a fair comparison should look at the 'taxable equivalent yield.' If the interest rate on a muni is better than the after-tax yield from a taxable bond, then munis might make sense. Otherwise, taxable bonds might still be the better choice, despite the potential tax hit. It all depends on your tax rate."
Investing involves risk, including loss of principal.
Investors should consider carefully information contained in the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.
Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.
Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.
Rebalancing does not protect against losses or guarantee that an investor's goal will be met. Rebalancing may cause investors to incur transaction costs and, when a non-retirement account is rebalanced, taxable events may be created that may affect your tax liability.
Schwab Equity Ratings and the general buy/hold/sell guidance are not personal recommendations for any particular investor or client and do not take into account the financial, investment, or other objectives or needs of, and may not be suitable for, any particular investor or client. Investors and clients should consider Schwab Equity Ratings as only a single factor in making their investment decision while taking into account the current market environment.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Schwab Equity Ratings® and Schwab Equity Ratings International®, Schwab's proprietary stock research, are produced by the Schwab Center for Financial Research (SCFR). SCFR is a division of Charles Schwab & Co., Inc. (Schwab).1123-3JMV