Pub. 15 2024 Issue 3

market rates. Understanding this dynamic in fixed income investing is important, especially in times when the inverted yield curve is tricking you into keeping a lot of your dollars in the shorter part of the curve. Late‑cycle investing typically involves moving towards protecting the yield or income of the portfolio versus the value of the portfolio. 4. There are good ways and bad ways to extend duration. Traditional late-cycle fixed-income investment strategies typically involve some level of extension of duration to ensure the “locking in” of yield over a longer period. Extending duration needs to be done in a prudent manner with bonds that have some level of call or prepayment protection. Sacrificing structure for extra yield is not a strategy that typically ends well. The bonds that provide less call or prepayment protection are typically going to yield more than those that provide adequate call or prepayment protection. As portfolio managers look to extend duration to protect future yields, they must do so in a prudent manner. 5. Waiting for where rates used to be can cost you. Trying to buy bonds at or near the peak in the rate cycle is a challenging and usually impossible task. However, a better approach is to participate in the market as liquidity allows by deploying excess liquidity through a well-thought-out investment strategy. The investor should think about “time in the market” and not “timing the market.” It’s easy to think you missed the peak in rates and not take any action. Market interest rates, like the treasury markets, tend to lead the Fed Funds Rate both up and down. As we head towards an upcoming easing cycle from the Fed, we should be ever mindful that we do not have the crystal ball when it comes to predicting interest rates. Instead, we should stick to our written investment strategy of building a portfolio of bonds with stable and predictable cash flows to complement our entire balance sheet. Utilize the words of wisdom in this article to ensure we can build a higher performing portfolio at start of this next rate cycle. Dale Sheller is an associate partner and the director of Financial Strategies Group at The Baker Group. He joined the firm in 2015 after spending six years as a bank examiner with the Federal Deposit Insurance Corporation. Sheller holds a bachelor’s degree in finance and a master’s degree in business administration from Oklahoma State University. He works with clients on investment portfolio strategies, interest rate risk management, liquidity risk management and regulatory issues. Sheller regularly speaks at educational seminars nationwide and serves as a faculty member for multiple banking schools. Contact Dale at (800) 937-2257 or dsheller@gobaker.com. CONTACT US TODAY TO PLACE YOUR ANNOUNCEMENT AD. THERE'S NOTHING WRONG WITH BEING A Call (801) 676-9722 or scan the QR code to get started. Place QR Code Here ▷ Show off your employees ▷ Show off your accomplishments ▷ Show off a job well done Employees are motivated when they are recognized and feel valued. This magazine is a great platform to celebrate your team’s accomplishments! 27 West Virginia Banker

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