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CNN Live Saturday
How to Benefit from Rising Interest Rates
Aired May 15, 2004 - 16:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BETTY NGUYEN, CNN ANCHOR: DOLLAR SIGNS is up next. But first, here's what's happening at this hour.
A massive rally with a political purpose in Tel Aviv, Israel. Tens of thousands of Israelis gathered in the heart of the city today. This demonstration was designed to put the pressure on the country to move ahead with its stalled Gaza pullout plan.
Another deadly weekend in Iraq. Coalition officials say five Americans died in the last 24 hours. Three of them were killed in separate attacks. One died in a vehicle accident. Another died of natural causes. The death count is higher for insurgents, more than 40 fighters have been killed.
Back in this country, engineers are at the scene of a highway tragedy south of Golden, Colorado. They're trying to figure out how a 40-ton steel support beam came crashing down on an SUV, killing its three occupants. The highway overpass was under construction.
Well, less than two hours and counting. That's when Smarty Jones competes against nine other horses in his bid to become the first triple crown winner since 1978. He's won all seven of his past races. A triple crown victory would mean Smarty Jones' owners earn, get this, 5 million smackeroos.
Welcome to DOLLAR $IGNS, where we help you make the most of your money. Today we're going to be talking about interest rates. Pressure is increasing on the Federal Reserve to boost them as early as June. And when that happens, consumers need to be prepared.
Our Kathleen Hays looks at what you can do.
(BEGIN VIDEOTAPE)
KATHLEEN HAYS, CNN ECONOMICS CORRESPONDENT (voice-over): The Federal Reserve put the world on notice this week, it's getting ready to raise interest rates to fight inflation. So don't just sit there, do something, because soon any kind of credit is going to get more expensive, starting with the mortgage on your home.
ANTHONY CHAN, BANK ONE: I think the last two employment reports should be a wakeup call to anyone that is thinking of buying a house or refinancing. Long-term interest rates, they're not going down. In fact, they're probably going to continue to inch higher from here. So if you're thinking about refinancing, yesterday was the day to do it. If you didn't do it yesterday, then today is the day to do it. HAYS: As of last week, average 30-year mortgage rates had already topped 6 percent. And if the Federal Reserve starts raising interest rates in late June, mortgage rates could hit 7 percent or higher by next year. That means higher monthly mortgage payments that could price some buyers out of the market.
But even if you can still afford a new house in the suburbs, you may not be able to afford that shiny new car to make the commute every day. Did you think those rich incentives and 0 percent financing rates were going to last forever?
JARED BERNSTEIN, ECONOMIC POLICY INSTITUTE: All that will fade. I think those were all the very aggressive measures taken by the Fed and by sectors throughout the financial markets to try to stimulate what was a pretty weak economy from the perspective of demand.
HAYS (on camera): And investors, don't forget to take a look at the stocks and mutual funds in your 401(k). If interest rates rise, interest-sensitive cyclical stocks like banks and home builders will take a back seat to defensive sectors like household products and drugs.
Kathleen Hays, CNN Financial News, New York.
(END VIDEOTAPE)
NGUYEN: Well, whether you're in the market for a new home, condo or car, or if you just want to protect your investments, our guests are going to tackle those questions. Todd Mark is with Consumer Credit Counseling Service here in Atlanta. And Ellen McGirt is with "Money" magazine in New York.
Thanks to both of you for being here. Well, Mark, let's start with you, because we're talking about seeing these interest rates rise as early as June. Should folks be on the verge of panic if they're wanting to make some big purchases?
TODD MARK, CONSUMER CREDIT COUNSELING SERVICES: I don't know if they should be on the verge of panic. We don't want to start the sky is falling. But let's face it, interest rates are going to be going up. And from CCCS's standpoint, what we're worried about are people that have racked enormous amounts of debt in the last few years as interest rates were low.
So if you've got high credit card rates, and say they're not fixed rates, they're floating, they're variable, well, guess what, as soon as the interest rates go up, that prime rate goes up, your credit card debts go up as well. And your monthly cost is going to go up. Same thing for mortgages. If you've got a floating mortgage rate, your monthly expense could be going up on your mortgage. So it's kind of a scary time. And of course, as interest rates go up, that's going to encourage saving and try to help people stop spending so much.
NGUYEN: So, Ellen, we're told not to panic. But if you haven't made that big purchase, in your opinion, what should that one thing be that you need to buy if you're still waiting? ELLEN MCGIRT, "MONEY" MAGAZINE: Well, you know, it's interesting. I think that people are sitting on the sidelines in a couple of areas of their lives, they're certainly sitting on the sidelines as far as the stock market is concerned. Many of the people that I talk to on a regular basis and the people that we poll are very, very nervous about jumping back in, especially with Iraq, especially with interest rates.
But I agreed with the segment and Kathleen Hays, if that this is the time for you to buy a house that you can afford, that you thought about your entire financial plan and you thought about your spending plan and your income, then certainly now is the time to do it, or any kind of major refinancing.
NGUYEN: All right. We want to take a viewer call right now. We have Lewis (ph) from Tennessee who's got a question about credit cards. Lewis, what's your question?
CALLER: I'm retired. I'm 68 years old. My income is adequate to pay all my responsibilities which basically consists of a mortgage at 61.25 (sic), and a credit card at 8.9, it's $14,000, the credit card. My question is, I have about $60,000 equity in the mortgage, but I keep getting offers from different credit cards at 0 percent for 12 months, and then going into an adjustable rate. And I question whether -- I might as well just keep what I have and just keep what I have and just keep paying the...
NGUYEN: So Todd, should he switch to those 0 percent credit cards?
MARK: Well, Lewis, first off, the last thing I want to see you do is take money out of your home and take these unsecured credit card debts and secure them with the title of your home. We've seen so many people do that in the last few years. And they're going to be paying as interest rates go up. So don't do that.
Now if you got have credit cards that have high interest rates and you are able to get a credit card with a 0 percent rate, that sounds good. But I want you to read the fine print, Lewis, because chances are that's going to be a rate that's going to last six months or nine months. Remember, you might not even qualify, depends on your credit score. Everybody gets "you're pre-approved." So you've got to wait until you see the actual card that comes in the mail. But if you do get 0 percent, there's nothing wrong with transferring over the balance.
NGUYEN: All right, we've got another question now from someone on the phone. We've got Barbara from Mississippi. Barbara, what's your question?
CALLER: Well, we have some mutual funds. And we may be needing some of the money in the next couple of years, because we've already retired. Should we now sell a good bit of mutual funds and get into cash at this time?
NGUYEN: Ellen, should she sell? MCGIRT: Barbara, that's a great question. And congratulations on your retirement. I'm sure you're going to have a blast. It's certainly a good time to do an entire portfolio review. And because you're definitely going to want to keep some exposure to the stock market all throughout your retirement, it's simply the best way to maintain and grow your wealth. But you're going to want to do it intelligently.
One of the things that you want to think about in terms of the stocks that you hold within your mutual funds are, are they appropriate for you? We're recommending that people revisit the blue chips. They're priced sort of cheap right now. And in fact, they're going to be probably best able to manage any kind of environment coming up, economic environment. They're least affected by interest rate rises. And of course, if the economy takes a downturn, they're most likely to survive. So you're going to want to do a portfolio review and make sure you have some exposure to some really solid blue chips.
Now is a good time to think about bonds and really save money. And I always like to call it the "baby's new shoe money" or "the money that you absolutely cannot afford to have anything go wrong with." And it's absolutely important to begin to think about where you're going to want to put your cash, and we're recommending money markets at the moment. And I know that they don't yield much, but they're absolutely safe and guaranteed by the government and a good place to go.
Your next safest bet as you begin to take some of your money out of the mutual fund stocks is into short-term bond funds. Vanguard, T. Rowe Price, and Fidelity all offer low-cost choices. But they're good, because their maturities are from one to three years, which means that you're not going to be exposed to the interest rate risks if we're going to see a series of price hikes if you have the longer maturities.
NGUYEN: All right, Ellen, well, a lot of people want to know, how high will these interest rates go? We'll try to answer your questions. Your calls and e-mails next on DOLLAR $IGNS. And of course, you can still send your questions to dollarsigns@cnn.com, or call in, that number is 1-800-807-2620, we'll be right back.
(COMMERCIAL BREAK)
NGUYEN: Welcome back to DOLLAR $IGNS. We're talking about how you can get what you want before interest rates started climbing. Todd Mark is a consumer credit counselor and Ellen McGirt is with "Money" magazine. We want to get right to our phone lines now, because we have David on the phone from Connecticut. David, what is your question?
CALLER: My question is this. I'm retired, and I rely a lot on interest income to support myself. And how -- if the Fed raises the rates, let's say a quarter or half a percent, and the lending rate, how and would that affect and when would that affect my CD rates and my savings accounts at the bank?
NGUYEN: Todd, let's start with you.
MARK: Well, obviously if you're a saver, this is going to be great news for you. And if the rates will go up in June, if it's a quarter point in June, who's to speculate how quickly the rates could go up to 1 percent or even farther. Things like the money markets, your bonds will be going up immediately.
Now, remember, that's not the bonds you hold currently. But if you're going to be putting money and looking for investment income, conservative investment income going forward, this is great news for you.
NGUYEN: And Ellen, we have Grace on the phone from Massachusetts who wants to know why these interest rates are going higher. So, Grace, tell us exactly what your question is. Grace, can you hear us?
CALLER: Yes.
NGUYEN: All right, we seem to -- hello, Grace, can you hear us?
CALLER: Yes.
NGUYEN: All right. Tell us your question.
CALLER: I want to know why interest rates have to go up for the low-income people?
MCGIRT: Oh, Grace, I wish I could answer that question for you. I can just tell you in general that there's not a single segment of the marketplace, particularly low-income people, particularly retired people or people who are on a fixed income, who don't worry over every aspect of this and really need to watch every penny.
The Fed in particular is worried about inflation. They're worried about what happens when an economy grows, and grows quickly, when prices rise. And this is an attempt to actually contain that a little bit so that business can continue to do business and people can continue to live their lives and buy the things that they need.
That said, Todd was spot on, that it can be a good news for savers. And if you're able to cut your budget and you're able to sock money away like so many investors and people need to do, and live the best possible balanced lifestyle that you can, then you can make up any shortfall or any difference in other parts of your life by saving and taking advantage of those CD rates that will go up in the next six months or in a year, and money markets and other safe havens.
NGUYEN: Yes, you just have to be smart about it. We want to take an e-mail question now from Mark in Virginia. And his question is: "I'm currently building a house that is due to be complete in eight months. If interest rates do go up, how much do you think they could go up over the next eight months?" Todd, what do you think?
MARK: Mark, you know, I left my crystal ball back at home. There's no way to know. It looks like there's probably going to be a quarter percent interest rate hike in June, maybe another one later in August or September. And the economy will dictate what the FOMC decides to do. So if you've got an ability, as you're building right now, to lock in, and even if you've got to pay some points to lock in right now, that might be a great opportunity for you to do that.
NGUYEN: Now, we have John from Virginia on the phone. And you just mentioned that locking in interest rates. John, what's your question?
CALLER: My question is along the line, we have an opportunity here to lock in on the 30-year fixed jumbo or a five-year ARM or a seven-year ARM. The house will close in probably mid-September. And I wondered what opportunity -- or what we should do there right now? We pay about 1 percent fee on the loan amount.
NGUYEN: Ellen, I'll let you take this one.
MCGIRT: Great. ARMs always make me nervous. And I am -- I just -- full disclosure, I'm a risk-averse and I'm a debt-averse person, because you just -- it's hard to know in this environment where you're going to be in two, three, four, five years. For someone who's going to be in a home for a long period of time, in general, the longer lock-in is better.
You've got better piece of mind, you know what your rates are going to be. And if anything else happens in your life between now and then, you lose a job, you add a child, you begin to take care of an older relative, all of these things that are part of real life, that you know what your costs are going to be, what your fixed costs are going to be, and you're going to be able to budget accordingly.
ARMs are just -- have just been irresistible for the last few years, and I worry that so many people take them on when they haven't thought about what their life is going to be in the next few years. If you're going to be in the house longer than five years, then I would think that just knowing a 30-year fixed, and knowing what your costs are going to be would be the best thing.
NGUYEN: A lot of people are worried about credit card interest rates. And Anita from Louisiana is one of them. Anita, what's your question?
CALLER: Hi. I recently had a lawsuit settlement that came in, I had about $40,000. I was out of work for about two or three years. And during that time I accumulated some debt. I have two major credit cards, one at 16.9 percent rate, and the other one like at 15.9, each with about $10,000 on each. My question is, what is the best way to handle the money? Like I said, it's about $40,000. Should I put that money in the bank, do a CD loan against that, and then try to put those credit cards -- use that money to put the credit cards together in order to get the lower interest rate and then try to pay those off? Or what would be your advice on the best way to handle the money? I also am looking into doing a business venture. I own my home. I don't have any equity in it. I've only been here for two years. And I have -- the rate I got on my home was 7 percent. So at this point I don't want that money to slip through my hands. So I want to know what the best thing to do with it is. NGUYEN: OK. So Todd, let's take the first question. Should she consolidate?
MARK: No, I've got a better idea. Anita, wipe out your debt, right now. You've got $40,000. Take that first $20,000 and wipe out credit cards at 15.9 and 16.9, because guess what, they're only going to go up. So now that you've got this money, don't put it into the stock market for one reason only, you can't tell me that you've got a guarantee that's going to beat 16.9 percent which you'll be paying on the credit cards. And if you do, you should be hosting your own show probably. But so I would retire the debt right now and then save the other $20,000 for your business.
NGUYEN: All right. We are going to have to take a quick break, unfortunately. But I do want you to stay with us. We'll have more of your calls and e-mails right after this break. We'll be right back.
(COMMERCIAL BREAK)
NGUYEN: Welcome back to DOLLAR $IGNS. We're talking about interest rates. And Harry from Atlanta, Georgia, has this question: "How will rising interest rates affect apartment occupancy? And how long will it take after rates begin to rise for these effects to take place?" Todd, what do you think?
MARK: Apartment occupancy. Well, here is what it's going to do to the housing market. Obviously, if mortgage rates are going to be going up, and they follow the bond yields, what that's going to do is that's going to make housing more expensive. So now the house prices themselves aren't going to go up. But your monthly cost of living in that house on a 30- or 15-year mortgage is going to go up. So that might mean people have to look at other options, whether they're doing an ARM, or maybe they're going to be looking at apartments as an option, a cheaper housing option. Only time will tell.
NGUYEN: Of course, and Greg from California has the lucky fortune of having some money to play with. He's on the phone. Greg, what's your question?
CALLER: Hi, thank you very much. We took advantage of the housing market and sold our house. We walked away with about 250 in the bank and had $70,000 in savings. So but because we had twins, we had kind of outgrown our house. So at this point, we want to know, we've been looking to buy another house. But we're in Los Angeles. And of course, the housing market here continues to go up. There are four families they say for every house that's on the market. And so we've been looking at million-dollar houses. Is now the time to buy and take on a $750,000, $800,000 mortgage or should we wait?
NGUYEN: Ellen, I saw that face you made, should he buy?
MCGIRT: You know, there are so many lifestyle factors that go into deciding whether or not to buy a house or not. And one of them has to do with your employment situation, I think. If you've a stable employment situation, you need a place to live. There's almost no advantages to waiting. I would -- and prices are going to go up. But you're in one of those intensely inflationed markets there. So if you're looking -- if your strategy is to rent, is to invest, is to enjoy your twins, enjoy your life, and invest in the rest of your life, then I would wait a couple of years to see how the real estate market in your area is going to go.
It's a tough call. If you're not worried about your job, and you feel that this is absolutely the place you're going to be for a few years, I would go ahead and start looking around and have fun shopping.
NGUYEN: We want to go north of the border now and talk to Eric from Toronto. He wants to talk about the value of the dollar. Eric, what's your question?
CALLER: Well, the increased interest rates, would they affect the value of the U.S. dollar and give Americans better buying power?
NGUYEN: Todd?
MARK: Well, we're trying to stave off inflation, where the dollar will be losing value. But remember, as interest rates go up, this is going to kind of hinder your purchasing power. It's trying to stop people from spending so much, and put a focus on saving. That's one of the keys of raising interest rates.
NGUYEN: Ellen, you looked like you wanted to jump in real quick.
MCGIRT: Just real quick, because it's impossible to know how these really do play out. But one of the things that does happen when interest rates go up is that foreign investors are interested in buying U.S. bonds. And that in particular causes them to buy more dollars because they have to convert their currency and buy it in ours. And that could usually mean something very strong for the dollar. But again, we're in an election year. There are a lot of variables there. But it could mean something good for the dollar, which would actually be very good for us.
NGUYEN: OK. We have Dean from Florida on the phone as well. He's got a question. Dean?
CALLER: Yes. Good afternoon, folks. My question is regarding for those of us that are quite clueless when it comes to putting together a portfolio. I'm 37 years old and will be looking Monday towards actually having a job where I can actually look towards building towards the future. What advice would you have for those who have an empty portfolio but an opportunity to perhaps make up for lost time?
NGUYEN: All right, this is our last question, I'm going to let you both take it, let's start with Todd.
MARK: Well, I'm not an investment person, Dean. Obviously, that's probably Ellen's ball of wax a bit more. But if you're going to start dollar-cost averaging, I wouldn't worry about what interest rates are going to be doing in the short term. Hopefully you've got many years to be putting away for your retirement. And it just depends on your risk aversion. If you like conservative investments, obviously money markets would be looking great, bonds would be looking great. But if you want to be in the equities, maybe there's a great buying opportunity right around the corner for you.
NGUYEN: OK. Quickly, Ellen, just a few seconds.
MCGIRT: Jump into the stock market. You've got plenty of time. Fill out those 401(k) forms as quickly as you can. Put as much as you can into it so you get that matching, it's free money. Look at total market, look at large cap, you can afford to be aggressive as long as you keep everything else in check.
NGUYEN: All right. We are out of time. Todd Mark, with the Consumer Credit Counseling, and Ellen McGirt, with "Money" magazine, thank you.
That is all the time we have for now. But stay with CNN. Up next, "PEOPLE IN THE NEWS," profiles of Howard Stern and Alanis Morissette.
Then at 6 Eastern, on "CNN LIVE SATURDAY," we'll take you to the Hall of Courage, it honors the struggle to desegregate America, and the ruling that started it all, Brown V. Board of Education.
And at 7 Eastern, "CAPITAL GANG" will look at how Defense Secretary Donald Rumsfeld is standing his ground amid the prisoner abuse scandal.
I'll be back after a quick break with today's top stories.
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Aired May 15, 2004 - 16:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BETTY NGUYEN, CNN ANCHOR: DOLLAR SIGNS is up next. But first, here's what's happening at this hour.
A massive rally with a political purpose in Tel Aviv, Israel. Tens of thousands of Israelis gathered in the heart of the city today. This demonstration was designed to put the pressure on the country to move ahead with its stalled Gaza pullout plan.
Another deadly weekend in Iraq. Coalition officials say five Americans died in the last 24 hours. Three of them were killed in separate attacks. One died in a vehicle accident. Another died of natural causes. The death count is higher for insurgents, more than 40 fighters have been killed.
Back in this country, engineers are at the scene of a highway tragedy south of Golden, Colorado. They're trying to figure out how a 40-ton steel support beam came crashing down on an SUV, killing its three occupants. The highway overpass was under construction.
Well, less than two hours and counting. That's when Smarty Jones competes against nine other horses in his bid to become the first triple crown winner since 1978. He's won all seven of his past races. A triple crown victory would mean Smarty Jones' owners earn, get this, 5 million smackeroos.
Welcome to DOLLAR $IGNS, where we help you make the most of your money. Today we're going to be talking about interest rates. Pressure is increasing on the Federal Reserve to boost them as early as June. And when that happens, consumers need to be prepared.
Our Kathleen Hays looks at what you can do.
(BEGIN VIDEOTAPE)
KATHLEEN HAYS, CNN ECONOMICS CORRESPONDENT (voice-over): The Federal Reserve put the world on notice this week, it's getting ready to raise interest rates to fight inflation. So don't just sit there, do something, because soon any kind of credit is going to get more expensive, starting with the mortgage on your home.
ANTHONY CHAN, BANK ONE: I think the last two employment reports should be a wakeup call to anyone that is thinking of buying a house or refinancing. Long-term interest rates, they're not going down. In fact, they're probably going to continue to inch higher from here. So if you're thinking about refinancing, yesterday was the day to do it. If you didn't do it yesterday, then today is the day to do it. HAYS: As of last week, average 30-year mortgage rates had already topped 6 percent. And if the Federal Reserve starts raising interest rates in late June, mortgage rates could hit 7 percent or higher by next year. That means higher monthly mortgage payments that could price some buyers out of the market.
But even if you can still afford a new house in the suburbs, you may not be able to afford that shiny new car to make the commute every day. Did you think those rich incentives and 0 percent financing rates were going to last forever?
JARED BERNSTEIN, ECONOMIC POLICY INSTITUTE: All that will fade. I think those were all the very aggressive measures taken by the Fed and by sectors throughout the financial markets to try to stimulate what was a pretty weak economy from the perspective of demand.
HAYS (on camera): And investors, don't forget to take a look at the stocks and mutual funds in your 401(k). If interest rates rise, interest-sensitive cyclical stocks like banks and home builders will take a back seat to defensive sectors like household products and drugs.
Kathleen Hays, CNN Financial News, New York.
(END VIDEOTAPE)
NGUYEN: Well, whether you're in the market for a new home, condo or car, or if you just want to protect your investments, our guests are going to tackle those questions. Todd Mark is with Consumer Credit Counseling Service here in Atlanta. And Ellen McGirt is with "Money" magazine in New York.
Thanks to both of you for being here. Well, Mark, let's start with you, because we're talking about seeing these interest rates rise as early as June. Should folks be on the verge of panic if they're wanting to make some big purchases?
TODD MARK, CONSUMER CREDIT COUNSELING SERVICES: I don't know if they should be on the verge of panic. We don't want to start the sky is falling. But let's face it, interest rates are going to be going up. And from CCCS's standpoint, what we're worried about are people that have racked enormous amounts of debt in the last few years as interest rates were low.
So if you've got high credit card rates, and say they're not fixed rates, they're floating, they're variable, well, guess what, as soon as the interest rates go up, that prime rate goes up, your credit card debts go up as well. And your monthly cost is going to go up. Same thing for mortgages. If you've got a floating mortgage rate, your monthly expense could be going up on your mortgage. So it's kind of a scary time. And of course, as interest rates go up, that's going to encourage saving and try to help people stop spending so much.
NGUYEN: So, Ellen, we're told not to panic. But if you haven't made that big purchase, in your opinion, what should that one thing be that you need to buy if you're still waiting? ELLEN MCGIRT, "MONEY" MAGAZINE: Well, you know, it's interesting. I think that people are sitting on the sidelines in a couple of areas of their lives, they're certainly sitting on the sidelines as far as the stock market is concerned. Many of the people that I talk to on a regular basis and the people that we poll are very, very nervous about jumping back in, especially with Iraq, especially with interest rates.
But I agreed with the segment and Kathleen Hays, if that this is the time for you to buy a house that you can afford, that you thought about your entire financial plan and you thought about your spending plan and your income, then certainly now is the time to do it, or any kind of major refinancing.
NGUYEN: All right. We want to take a viewer call right now. We have Lewis (ph) from Tennessee who's got a question about credit cards. Lewis, what's your question?
CALLER: I'm retired. I'm 68 years old. My income is adequate to pay all my responsibilities which basically consists of a mortgage at 61.25 (sic), and a credit card at 8.9, it's $14,000, the credit card. My question is, I have about $60,000 equity in the mortgage, but I keep getting offers from different credit cards at 0 percent for 12 months, and then going into an adjustable rate. And I question whether -- I might as well just keep what I have and just keep what I have and just keep paying the...
NGUYEN: So Todd, should he switch to those 0 percent credit cards?
MARK: Well, Lewis, first off, the last thing I want to see you do is take money out of your home and take these unsecured credit card debts and secure them with the title of your home. We've seen so many people do that in the last few years. And they're going to be paying as interest rates go up. So don't do that.
Now if you got have credit cards that have high interest rates and you are able to get a credit card with a 0 percent rate, that sounds good. But I want you to read the fine print, Lewis, because chances are that's going to be a rate that's going to last six months or nine months. Remember, you might not even qualify, depends on your credit score. Everybody gets "you're pre-approved." So you've got to wait until you see the actual card that comes in the mail. But if you do get 0 percent, there's nothing wrong with transferring over the balance.
NGUYEN: All right, we've got another question now from someone on the phone. We've got Barbara from Mississippi. Barbara, what's your question?
CALLER: Well, we have some mutual funds. And we may be needing some of the money in the next couple of years, because we've already retired. Should we now sell a good bit of mutual funds and get into cash at this time?
NGUYEN: Ellen, should she sell? MCGIRT: Barbara, that's a great question. And congratulations on your retirement. I'm sure you're going to have a blast. It's certainly a good time to do an entire portfolio review. And because you're definitely going to want to keep some exposure to the stock market all throughout your retirement, it's simply the best way to maintain and grow your wealth. But you're going to want to do it intelligently.
One of the things that you want to think about in terms of the stocks that you hold within your mutual funds are, are they appropriate for you? We're recommending that people revisit the blue chips. They're priced sort of cheap right now. And in fact, they're going to be probably best able to manage any kind of environment coming up, economic environment. They're least affected by interest rate rises. And of course, if the economy takes a downturn, they're most likely to survive. So you're going to want to do a portfolio review and make sure you have some exposure to some really solid blue chips.
Now is a good time to think about bonds and really save money. And I always like to call it the "baby's new shoe money" or "the money that you absolutely cannot afford to have anything go wrong with." And it's absolutely important to begin to think about where you're going to want to put your cash, and we're recommending money markets at the moment. And I know that they don't yield much, but they're absolutely safe and guaranteed by the government and a good place to go.
Your next safest bet as you begin to take some of your money out of the mutual fund stocks is into short-term bond funds. Vanguard, T. Rowe Price, and Fidelity all offer low-cost choices. But they're good, because their maturities are from one to three years, which means that you're not going to be exposed to the interest rate risks if we're going to see a series of price hikes if you have the longer maturities.
NGUYEN: All right, Ellen, well, a lot of people want to know, how high will these interest rates go? We'll try to answer your questions. Your calls and e-mails next on DOLLAR $IGNS. And of course, you can still send your questions to dollarsigns@cnn.com, or call in, that number is 1-800-807-2620, we'll be right back.
(COMMERCIAL BREAK)
NGUYEN: Welcome back to DOLLAR $IGNS. We're talking about how you can get what you want before interest rates started climbing. Todd Mark is a consumer credit counselor and Ellen McGirt is with "Money" magazine. We want to get right to our phone lines now, because we have David on the phone from Connecticut. David, what is your question?
CALLER: My question is this. I'm retired, and I rely a lot on interest income to support myself. And how -- if the Fed raises the rates, let's say a quarter or half a percent, and the lending rate, how and would that affect and when would that affect my CD rates and my savings accounts at the bank?
NGUYEN: Todd, let's start with you.
MARK: Well, obviously if you're a saver, this is going to be great news for you. And if the rates will go up in June, if it's a quarter point in June, who's to speculate how quickly the rates could go up to 1 percent or even farther. Things like the money markets, your bonds will be going up immediately.
Now, remember, that's not the bonds you hold currently. But if you're going to be putting money and looking for investment income, conservative investment income going forward, this is great news for you.
NGUYEN: And Ellen, we have Grace on the phone from Massachusetts who wants to know why these interest rates are going higher. So, Grace, tell us exactly what your question is. Grace, can you hear us?
CALLER: Yes.
NGUYEN: All right, we seem to -- hello, Grace, can you hear us?
CALLER: Yes.
NGUYEN: All right. Tell us your question.
CALLER: I want to know why interest rates have to go up for the low-income people?
MCGIRT: Oh, Grace, I wish I could answer that question for you. I can just tell you in general that there's not a single segment of the marketplace, particularly low-income people, particularly retired people or people who are on a fixed income, who don't worry over every aspect of this and really need to watch every penny.
The Fed in particular is worried about inflation. They're worried about what happens when an economy grows, and grows quickly, when prices rise. And this is an attempt to actually contain that a little bit so that business can continue to do business and people can continue to live their lives and buy the things that they need.
That said, Todd was spot on, that it can be a good news for savers. And if you're able to cut your budget and you're able to sock money away like so many investors and people need to do, and live the best possible balanced lifestyle that you can, then you can make up any shortfall or any difference in other parts of your life by saving and taking advantage of those CD rates that will go up in the next six months or in a year, and money markets and other safe havens.
NGUYEN: Yes, you just have to be smart about it. We want to take an e-mail question now from Mark in Virginia. And his question is: "I'm currently building a house that is due to be complete in eight months. If interest rates do go up, how much do you think they could go up over the next eight months?" Todd, what do you think?
MARK: Mark, you know, I left my crystal ball back at home. There's no way to know. It looks like there's probably going to be a quarter percent interest rate hike in June, maybe another one later in August or September. And the economy will dictate what the FOMC decides to do. So if you've got an ability, as you're building right now, to lock in, and even if you've got to pay some points to lock in right now, that might be a great opportunity for you to do that.
NGUYEN: Now, we have John from Virginia on the phone. And you just mentioned that locking in interest rates. John, what's your question?
CALLER: My question is along the line, we have an opportunity here to lock in on the 30-year fixed jumbo or a five-year ARM or a seven-year ARM. The house will close in probably mid-September. And I wondered what opportunity -- or what we should do there right now? We pay about 1 percent fee on the loan amount.
NGUYEN: Ellen, I'll let you take this one.
MCGIRT: Great. ARMs always make me nervous. And I am -- I just -- full disclosure, I'm a risk-averse and I'm a debt-averse person, because you just -- it's hard to know in this environment where you're going to be in two, three, four, five years. For someone who's going to be in a home for a long period of time, in general, the longer lock-in is better.
You've got better piece of mind, you know what your rates are going to be. And if anything else happens in your life between now and then, you lose a job, you add a child, you begin to take care of an older relative, all of these things that are part of real life, that you know what your costs are going to be, what your fixed costs are going to be, and you're going to be able to budget accordingly.
ARMs are just -- have just been irresistible for the last few years, and I worry that so many people take them on when they haven't thought about what their life is going to be in the next few years. If you're going to be in the house longer than five years, then I would think that just knowing a 30-year fixed, and knowing what your costs are going to be would be the best thing.
NGUYEN: A lot of people are worried about credit card interest rates. And Anita from Louisiana is one of them. Anita, what's your question?
CALLER: Hi. I recently had a lawsuit settlement that came in, I had about $40,000. I was out of work for about two or three years. And during that time I accumulated some debt. I have two major credit cards, one at 16.9 percent rate, and the other one like at 15.9, each with about $10,000 on each. My question is, what is the best way to handle the money? Like I said, it's about $40,000. Should I put that money in the bank, do a CD loan against that, and then try to put those credit cards -- use that money to put the credit cards together in order to get the lower interest rate and then try to pay those off? Or what would be your advice on the best way to handle the money? I also am looking into doing a business venture. I own my home. I don't have any equity in it. I've only been here for two years. And I have -- the rate I got on my home was 7 percent. So at this point I don't want that money to slip through my hands. So I want to know what the best thing to do with it is. NGUYEN: OK. So Todd, let's take the first question. Should she consolidate?
MARK: No, I've got a better idea. Anita, wipe out your debt, right now. You've got $40,000. Take that first $20,000 and wipe out credit cards at 15.9 and 16.9, because guess what, they're only going to go up. So now that you've got this money, don't put it into the stock market for one reason only, you can't tell me that you've got a guarantee that's going to beat 16.9 percent which you'll be paying on the credit cards. And if you do, you should be hosting your own show probably. But so I would retire the debt right now and then save the other $20,000 for your business.
NGUYEN: All right. We are going to have to take a quick break, unfortunately. But I do want you to stay with us. We'll have more of your calls and e-mails right after this break. We'll be right back.
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NGUYEN: Welcome back to DOLLAR $IGNS. We're talking about interest rates. And Harry from Atlanta, Georgia, has this question: "How will rising interest rates affect apartment occupancy? And how long will it take after rates begin to rise for these effects to take place?" Todd, what do you think?
MARK: Apartment occupancy. Well, here is what it's going to do to the housing market. Obviously, if mortgage rates are going to be going up, and they follow the bond yields, what that's going to do is that's going to make housing more expensive. So now the house prices themselves aren't going to go up. But your monthly cost of living in that house on a 30- or 15-year mortgage is going to go up. So that might mean people have to look at other options, whether they're doing an ARM, or maybe they're going to be looking at apartments as an option, a cheaper housing option. Only time will tell.
NGUYEN: Of course, and Greg from California has the lucky fortune of having some money to play with. He's on the phone. Greg, what's your question?
CALLER: Hi, thank you very much. We took advantage of the housing market and sold our house. We walked away with about 250 in the bank and had $70,000 in savings. So but because we had twins, we had kind of outgrown our house. So at this point, we want to know, we've been looking to buy another house. But we're in Los Angeles. And of course, the housing market here continues to go up. There are four families they say for every house that's on the market. And so we've been looking at million-dollar houses. Is now the time to buy and take on a $750,000, $800,000 mortgage or should we wait?
NGUYEN: Ellen, I saw that face you made, should he buy?
MCGIRT: You know, there are so many lifestyle factors that go into deciding whether or not to buy a house or not. And one of them has to do with your employment situation, I think. If you've a stable employment situation, you need a place to live. There's almost no advantages to waiting. I would -- and prices are going to go up. But you're in one of those intensely inflationed markets there. So if you're looking -- if your strategy is to rent, is to invest, is to enjoy your twins, enjoy your life, and invest in the rest of your life, then I would wait a couple of years to see how the real estate market in your area is going to go.
It's a tough call. If you're not worried about your job, and you feel that this is absolutely the place you're going to be for a few years, I would go ahead and start looking around and have fun shopping.
NGUYEN: We want to go north of the border now and talk to Eric from Toronto. He wants to talk about the value of the dollar. Eric, what's your question?
CALLER: Well, the increased interest rates, would they affect the value of the U.S. dollar and give Americans better buying power?
NGUYEN: Todd?
MARK: Well, we're trying to stave off inflation, where the dollar will be losing value. But remember, as interest rates go up, this is going to kind of hinder your purchasing power. It's trying to stop people from spending so much, and put a focus on saving. That's one of the keys of raising interest rates.
NGUYEN: Ellen, you looked like you wanted to jump in real quick.
MCGIRT: Just real quick, because it's impossible to know how these really do play out. But one of the things that does happen when interest rates go up is that foreign investors are interested in buying U.S. bonds. And that in particular causes them to buy more dollars because they have to convert their currency and buy it in ours. And that could usually mean something very strong for the dollar. But again, we're in an election year. There are a lot of variables there. But it could mean something good for the dollar, which would actually be very good for us.
NGUYEN: OK. We have Dean from Florida on the phone as well. He's got a question. Dean?
CALLER: Yes. Good afternoon, folks. My question is regarding for those of us that are quite clueless when it comes to putting together a portfolio. I'm 37 years old and will be looking Monday towards actually having a job where I can actually look towards building towards the future. What advice would you have for those who have an empty portfolio but an opportunity to perhaps make up for lost time?
NGUYEN: All right, this is our last question, I'm going to let you both take it, let's start with Todd.
MARK: Well, I'm not an investment person, Dean. Obviously, that's probably Ellen's ball of wax a bit more. But if you're going to start dollar-cost averaging, I wouldn't worry about what interest rates are going to be doing in the short term. Hopefully you've got many years to be putting away for your retirement. And it just depends on your risk aversion. If you like conservative investments, obviously money markets would be looking great, bonds would be looking great. But if you want to be in the equities, maybe there's a great buying opportunity right around the corner for you.
NGUYEN: OK. Quickly, Ellen, just a few seconds.
MCGIRT: Jump into the stock market. You've got plenty of time. Fill out those 401(k) forms as quickly as you can. Put as much as you can into it so you get that matching, it's free money. Look at total market, look at large cap, you can afford to be aggressive as long as you keep everything else in check.
NGUYEN: All right. We are out of time. Todd Mark, with the Consumer Credit Counseling, and Ellen McGirt, with "Money" magazine, thank you.
That is all the time we have for now. But stay with CNN. Up next, "PEOPLE IN THE NEWS," profiles of Howard Stern and Alanis Morissette.
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