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What the looming Fed rate hike means for your retirement

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What the looming Fed rate hike means for your retirement

A rate hike looks to be on the horizon this holiday season, with most experts betting the Federal Reserve will raise interest rates by the end of the month. It may not be the present that's at the top of your holiday shopping list, but it could wind up being a gift that keeps on giving.

If you're wondering how an interest-rate hike will impact your retirement portfolio, you're not alone. A recent survey found more than half of American investors say the economy is their top financial concern, fueled in part by worries over market volatility and interest rates.

Experts say the first increase in interest rates since 2006 might not have much of an impact, but if interest rates continue to climb seven or eight times in the next three or four years, you'll start to notice it in your wallet and your investments.

"A quarter-point rate hike has almost imperceptible impact on the household budget, and it's largely reflected in the financial markets already," said Greg McBride, senior vice president and chief financial analyst for Bankrate.com. "How many more rate hikes and [at] what intervals ... they come will dictate how volatile markets are and what happens to your investment returns in 2016 and beyond."

 

Stocks may trade sideways in 2016

Interest-rate changes — as well as the U.S. presidential election and geopolitical events — could certainly exacerbate ups and downs in the financial markets next year, but some financial advisors say potential volatility should motivate you to keep an eye on your asset mix.

Despite those ups and downs, the U.S. stock market may not move much at all in 2016. Stocks have mostly traded sideways this year, except for a brief correction in late summer.

Goldman Sachs chief U.S. equity strategist David Kostin forecasts the S&P 500 Index will tread water for a second consecutive year in 2016. Including dividends, he expects the total return for the broader stock market will be about 3 percent.

Don't worry about where the stock market will be next week or next month, and stay focused on your longer-term investment goals, financial experts say. Stocks will still probably offer the best long-term returns for your retirement portfolio — and interest-rate hikes can be viewed as a positive sign. "If the Fed is raising rates, it's because the economy is getting better, and it's that better economy that will ultimately be good for the stock market," said McBride at Bankrate.com.

Stick with shorter-term bond funds, ETFs

But it is the fixed-income portion of your portfolio that is particularly rate-sensitive. Rising interest rates mean falling bond prices. So look at the duration of your bonds.

Bond funds are a big part of target-date funds in many 401(k) plans as you approach retirement. Short-term bonds may be safer. If you are invested in bond mutual funds or ETFs, you may see the net asset value of the fund fall because bond prices fall when rates rise.

If the fund invests in longer-term bonds — say, 10-year or 30-year Treasurys — you'll have to stand by as the value of those bonds drop. If you're investing in shorter-term bonds, you'll limit the time your investment is exposed to a falling bond price, while also getting the benefit of a rising yield.

"If that's the type of interest-rate sensitivity that keeps you up at night, then consider moving to shorter-term bonds and perhaps adding some floating-rate bonds and inflation-linked bonds as a way to decrease interest-rate sensitivity," McBride suggested.

Find out the type of bonds that are in your funds. But don't rush to make major changes to your bond portfolio, cautions wealth advisor Tim Maurer, director of personal finance at the BAM Alliance. "Trading your conservative bond positions for higher-yield bonds and/or dividend-paying stocks contradicts the fundamental reason for holding bonds in the first place — to stabilize your portfolio," said Maurer.

"Consider risking abject boredom with your fixed-income allocation, investing in short-term Treasurys, FDIC-insured CDs and only the highest-rated diversified municipal bonds. These securities typically should not respond with high volatility if or when interest rates rise," he added.

Protect cash, stay liquid

And lastly, protect your cash. "Laddering," or overlapping, the expiration dates on certificates of deposit (CDs) has been a common approach for keeping cash safe in a low-interest-rate environment. Laddering allows you to "step up" to a higher rate each time a CD expires.

In addition to this all-weather strategy, you also may want to just put the cash component of your investment portfolio in a money fund. "You're not getting a great return, but that return will improve as interest rates go up," McBride at Bankrate.com said. "You're gaining a lot of flexibility in terms of when you want to access the cash or invest in other assets."

 

Source: Sharon Epperson / CNBC

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An Uber for dirty laundry - and other apps changing Uganda

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An Uber for dirty laundry - and other apps changing Uganda

Nicholas Kamansi created an app to find people to do laundry. 

Nicholas Kamansi created an app to find people to do laundry. 

Like much of Africa, Uganda has a vibrant technology and start-up scene. Some of the technology being developed is geared towards e-commerce and creating jobs, but others are using their computer-programming skills to create tools to solve Uganda's development challenges.

It's a familiar problem for young people around the world - it's Saturday, you've got a hangover, and there's a big pile of washing waiting to be done for the week ahead.

But on a cool Saturday morning in one of the Ugandan capital's many hilly suburbs, Gloria is unfazed by her pile of dirty clothes.

"It's amazing, even with a hangover, I don't have to worry about it," Gloria says, looking over her shoulder to the beckoning comfort of her living room.

Outside, single mother Naiga is at work bending over a pile of clothes she's washing in three big bowls of soapy water.

Like many others in Kampala, Naiga hand-washes other people's laundry to pay her rent and take care of her nine-month-old baby.

It's an old-fashioned job, but Gloria and Naiga have been brought together by cutting-edge technology.

Yoza, a locally developed android app, helps users find laundry services.

Yoza means "to wash" in Uganda's major language, Luganda.

"Ten years ago, it was rocket science," says Nicholas Kamanzi, one of Yoza's co-founders.

The app helps locate people who you can pay to wash your clothes.

The app helps locate people who you can pay to wash your clothes.

"But now if someone can just pick up their phone and get these services on demand, that's a big thing.''

Yoza is like Uganda's version of Uber for dirty laundry - using technology like location detection and social ratings to match service providers with clients.

But it takes local knowledge to implement this kind of idea in Uganda.

While there are enough middle-class Ugandans in places like Kampala with smartphones who can access the app, few of the laundry women have them.

So Yoza calls them up on their regular phones to sign them up, and book them for jobs.

Naiga is one of nearly 140 women now signed up to do laundry, and Mr Kamanzi says some of them have doubled their income.

If the laundry women don't have access to a smartphone, they can be called instead via Yoza.

If the laundry women don't have access to a smartphone, they can be called instead via Yoza.

"The value is very clear" for the laundry women, says Mr Kamanzi.

"We're giving you more clients in your area, so that you can make more money and maybe look after your family and pay school fees.''

Yoza is typical of Ugandan start-ups - using innovative means to tackle a local problem, in its early stages, and with a tiny customer base by international standards.

But despite this, Mr Kamanzi says Yoza, which launched in August, is commercially viable.

Pig farming app

Another innovative app is Pig+, an android app developed by Lacel Technologies.

It helps pig farmers to track their expenses, advises on what to feed the pigs, and helps diagnose health problems.

At a farm outside Kampala, farmer Kelly Kasoze is a big fan of the app - and the fact that it's local.

"It's amazing that it's Ugandan, I thought it was done by the British or Americans," he says.

"It tells me that in Uganda we have talent.

"Uganda is very innovative, I hope that we may be moving faster than America."

Pig+ only has around 200 users, so America's tech giants might not be losing sleep yet.

I ask Marvin Bosura from Lacel Technologies whether coding apps is a way to get rich, like in the Silicon Valley dream.

"I'd say it's not," he says, laughing.

"Our incentive is problem-solving. Knowing that my four years at university has helped 1,000 people, that's worth more than money."

That sense of wanting to help address Uganda's development challenges is common amongst the country's start-ups.

Sickle cell-free generation?

Akwasi Sarpong met the team of software developers making a sickle cell anaemia detector.

Akwasi Sarpong met the team of software developers making a sickle cell anaemia detector.

Afrigal Tech is a group of young women in their 20s, developing a product called Mdex.

It is a low-cost, portable hardware and software tool for diagnosing sickle cell anaemia, a serious hereditary blood disorder.

"If we put these in Uganda's 3,000 health centres, very many people would be reached, and if everyone got to know their sickle cell status, in the long run it would be easy to get a sickle cell-free generation," says Africagal Tech's Bonita Beatrice Nanziri.

The Afrigal Tech team are advocates for getting more Ugandan women involved in the tech arena.

They laugh about what their experiences was like when they began.

''We'd go to hackathons and be the only girls," says Ms Nanziri.

"The boys would give you a look like you were lost and you'd hear them say: 'When you put a girl on your team, she won't do anything'.

"But when I got on board, they found I could do something, they were laughing at themselves.''

The Afrigal team hasn't let these attitudes hold them back.

''If you choose tech, you have to be more outgoing and aggressive," says Ms Nanziri.

If they can crack the finance and technical problems, they reckon they might have a product on the market by the end of 2016.

Developing Mdex has taken hours of personal sacrifice, late nights up writing code and paying for the prototypes themselves.

Uganda's Silicon Valley

Self-funding is typical for Uganda's tech entrepreneurs.

The external support available is often in the form of prizes in innovation competitions supported by international tech firms.

Barbara Birungi is co-founder of Hive Co-lab, a tech hub located in a Kampala street which is home to a number of start-ups and technology companies.

The stretch may well be considered Uganda's Silicon Valley.

"To be honest, unemployment is the biggest factor," she says when asked what draws people to the start-up world.

"We showed people you could do stuff for yourself and make an impact on lives in your village.

"People are now realising they don't have to wait for a job and create jobs.''

A space for collaborative working called Hive Co-Lab is at the centre of Kampala's tech hub.   

A space for collaborative working called Hive Co-Lab is at the centre of Kampala's tech hub.   

It is estimated that more than 40,000 young people graduate every year from Uganda's universities.

With only about 8,000 jobs available, many graduates remain unemployed.

There is a compelling argument for the importance of tech hubs and business incubators to nurture young people with viable ideas in a country where at least 60% of people under age 30 are jobless.

And as Joanita Nalubega from AfriGal Tech explains, trying to get help from the government can be frustrating.

''There's too much red tape.

"Even if they are willing, there's always another person who's supposed to sign off, lots of signatures."

There are other challenges too, such as infrastructure.

Fix My Community is an innovative platform, modelled on Fix My Street in the UK, that allows residents to use SMS text messages to report local problems to the authorities.

But when we visit one of their pilot sites outside Kampala, the local government office tells us their internet has been down for weeks, so we can't see the system in action.

Laying the groundwork

So should the government be doing more - reducing bureaucracy for instance or investing in new technology?

David Turahi, a director at the Ministry of Information and Communications Technology, is a keen promoter of the country's tech scene.

But he says there's a limit to what the government can do.

''We have so many challenges - HIV, Ebola, epidemics.

"If we give incentives, then where do we get taxes from?''

Despite conceding bureaucracy is a problem, he insists it is an inevitable government disease in every country.

The solution in his view is more involvement from the private sector.

"Traditionally, government is not a businessman," he says.

The hurdles may be many, but these young Ugandans are inspired and relentlessly invest energy and effort working on solving problems that matter.

They all want to see their ideas and applications improve lives in their lifetime.

It's still very early days for Uganda's tech scene and the challenges they face are huge.

But even if this generation of start-ups are not the ones who go on to bigger success, they are laying the groundwork for the future.

 

Source: Akwasi Sarpong / BBC Africa, Kampala

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