Investors rage as Fed raises interest rates

Jill on Money

It appears that some have entered the third stage of the psychological condition known as “investor angst” (IA). This malady’s primary symptom causes overarching worry about how every holding in an investment account might react to changes in Federal Reserve policies.

Stage one of IA began nearly two years ago, with the “taper tantrum.” On May 22, 2013, the Federal Reserve announced that it would begin tapering its bond- and mortgage-backed securities program. The news freaked out investors, and they sold just about everything that was considered risky. Eventually, things bounced back and markets regained their footing.

The second stage was “patience panic,” which began earlier this year as investors fixated on whether the Fed would remove the word “patient” from its monetary policy statement. When the news finally emerged that the central bankers were no longer “patient” as to when they would consider hiking rates, reality sank in and investors entered stage three of the affliction: “rate rage.”

The more rational among us might think, “Wait, isn’t it a good thing that the Fed is finally going to normalize its monetary policy? Doesn’t that mean the economy is out of the woods and we can put the financial crisis, the Great Recession and the stinky recovery behind us?”

Those are great questions, but they matter little to institutional investors (the folks who manage big mutual, pension and hedge funds), who have been enjoying this period of ZIRP (zero interest rate policy). The “pros” are among the most likely to suffer from rate rage, because once interest rates start to rise, the period of easy money will draw to a close. After that time, the big shots will no longer be