While the Federal Reserve has kept interest rates at record lows during the pandemic, it's only a matter of time before they start to rise as the economy continues its recovery and policymakers wrap up the current bond-buying taper. How should investors approach building their portfolio once this happens? In this segment of Backstage Pass, recorded on Nov. 10, Fool contributors Rachel Warren, Taylor Carmichael, and Connor Allen discuss.
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Taylor Carmichael: When I talk about it with Fools, most of us are just keep doing what we're doing, we buy stocks, it's the best place to put your money. I do change the stocks that I buy a little bit I tweak it.
For instance, one major move that we made, my family, we've held Visa for decade, switched it up for Schwab, so Visa is a great stock for when people are buying things and the economy is going strong.
Schwab's a great stock for interest rates going up, and I think we've probably at some point going to see interest rates going up. I love Schwab, they've got $7 trillion under management and you can make a lot of money on Schwab.
That's one shift we did, think about your bank stocks, if you have any bank stocks, because bank stocks do well in a rising interest rates environment, typically, particularly Silvergate Capital or the Silicon. S-I-V-B is their ticker, is it, do you remember Rachel, Silicon Investment?
Rachel Warren: Yeah.
Taylor Carmichael: It's the bank out in California.
Rachel Warren: Silicon Valley Bank.
Taylor Carmichael: Thank you. Silicon Valley Bank. They're a great bank for rising interest rates because Schwab is terrific. Schwab is $7 trillion under management. B of A [Bank of America] has got like one or two. That would be my number 1 pick if you're worried about rising interest rates. But in general, we hunker down to keep buying what we love to buy because these too will shift. So it's a long-winded way of saying just keep on, keep on. [laughs]
Rachel Warren: That's awesome. What about you Connor what do you think?
Connor Allen: Those are some great points, Taylor. Another thing about rates and what confuses me about the market right now is rates are basically zero and they've been zero for such a long time and everybody knows that rates will go up. But it doesn't seem like anybody is taking any cautionary steps in expectation of that being on the horizon. It seems like everybody is just chugging away, thinking that rates are going to stay at zero forever.
That's what the picture of the market looks like for me. I don't know. I feel like maybe some more caution could be good for the market moving forward knowing that rates are going to come up eventually. I guess historically they will come up. Who knows what the Fed will do?