If you do it right, investment portfolio management with an inverted yield curve will be perfectly boring, says Charley McQueen, president/CEO at McQueen Financial Advisors.

“It’s boring because we need to do the basics,” says McQueen, who addressed the 2023 CUNA Finance Council Conference Monday in Anaheim, Calif., with his colleague, Jim Craven, vice president and senior consultant.

“I think interest rates will start to come down in the next six to 12 months, so we’ll want to look for nonoption-based investments rather than mortgages or callable bonds,” McQueen says. “I want to look at fixed-term maturities and build a nice, boring ladder of securities three, four, or five years long. That way we’ll have constant maturities we’ll be able to reinvest in whatever market we’re in.”

He calls inverted yield curves—when long-term yields fall below short-term yields—“wonderful and painful because they usually tell us what's coming next.”

With an inverted yield curve, McQueen advises against investing in callable securities and mortgages.

“Nothing against them, but if you own mortgages in this environment and interest rates go up, the value of that investment goes down but the life of it extends,” he says. “I want my money back so I can reinvest at a higher level.”

He’s also not a fan of corporate bonds due to the prospects of a recession.

Good investment options in this environment include “really boring noncallable agency bonds, Treasury bonds, and municipal bonds,” McQueen says.

Regardless of what the future holds, it’s crucial to discuss scenarios with colleagues, even if you disagree. Craven, for example, believes the Federal Reserve will have to raise rates, while McQueen sees a rate cut coming.

“Who knows who’s right? It’s good to have dissenting opinions and to talk about them,” McQueen says. “It’s about managing for the uncertainty of outcomes, having a range of potential outcomes, and being prepared for them.”