The yield on the 10-year U.S. Treasury recently crossed 5%, a level that has attracted plenty of attention in the financial media. That makes sense. Five percent is a memorable number.

From an investment perspective, though, there is nothing magical about 5%.

Interest rates matter. Changes in rates affect borrowing costs, bond yields, business decisions, and the broader economy. But a Treasury yield crossing an arbitrary round number does not suddenly make the information more useful for making investment decisions.

The better question is whether anything about the current interest-rate environment should cause us to change the way we invest.

We don’t believe it should.

Bond markets are forward-looking. Before the Federal Reserve’s most recent rate increase, Treasury yields had already moved higher as investors increasingly expected the Fed to act. When the Fed finally announced the increase, relatively little happened to yields because the market had already anticipated the news.

More importantly, every dollar in a portfolio has a job. Stocks are primarily responsible for long-term growth, while bonds tend to preserve capital and insulate portfolios from large stock market swings.

Higher rates don’t change that job. In fact, higher yields generally improve the return potential of bonds going forward. Earning a little more from the part of the portfolio designed for stability isn’t a bad outcome.

Higher interest rates are frequently presented as bad news for stocks because they increase financing costs. But the relationship isn’t nearly that simple. The Federal Reserve often raises rates when economic conditions are strong and cuts them when economic conditions weaken. These competing narratives – higher financing costs versus a strong economy – make it difficult to predict if rising rates might be good or bad for stocks. Market participants make this evaluation every day and reflect those expectations in stock prices.

Rather than trying to decide which story sounds better, let’s study the data.

We looked at the historical record of US stock market returns and interest rate changes from 1979 through 2025, then we separated calendar years based on whether the 10-year Treasury yield rose or fell during the year.

The results are remarkably similar.

In years where rates increased, US stocks delivered an average return of 11.9%. In years where rates decreased, the average return was 11.6%. A difference of just 0.3%.

The takeaway is not that rising rates are good or bad for stocks. It is that markets incorporate expectations about changing interest rates into stock prices. Investors don’t need to predict the direction of rates to capture the long-term returns stocks are expected to provide.

Rising rates do not spell doom for stocks, nor do they provide a reason to change a well-designed financial plan. Historically, the direction of interest rates has told us very little about future stock market returns.

For investors, there is no special significance to the 10-year Treasury yielding 5% instead of 4.9%. It is a round number that makes for an interesting headline, but it doesn’t change the role of stocks or bonds in a well-designed portfolio.

Bonds still have the same job in our portfolios: preserving capital and dampening stock market swings. Higher yields simply allow them to earn more while doing it.

Our stock investments remain the portfolio’s primary source of long-term growth. Nearly five decades of market history give us little reason to treat rising interest rates as a useful signal about future stock returns.

Financial headlines will change. Round numbers will come and go. The principles behind a well-designed investment plan don’t change with them.

We recently sat down with a couple in their 50s who had spent decades building. Careers. A portfolio. A family. They funded education, paid down debt, and prepared for a future that always seemed to require one more year of work and one more dollar saved.

For most of that time, every dollar had a job. Pay down the mortgage. Fund college. Max out retirement plans. Set aside cash for taxes. Invest the next business distribution.

Now their cash flow is beginning to look different. Many of the major assignments are covered, which means more of the next dollar comes with a choice.

They like their work and still have goals. They also care deeply about having time for the relationships that matter to them, especially family, friends, and their own parents.

That led us to a more interesting question:

The next dollar could go into the portfolio. It could pay for help that creates breathing room, fund a longer family visit, support a cause, help the kids, or simply wait until the right use becomes clearer.

The right answer depends on the person.

Every client has some mix of assigned dollars and choice dollars, and that mix changes over time. For someone still building, preferences help determine which goals deserve priority. For someone with more room in the plan, those same preferences can help direct that freedom.

Our founder, Rick Hill, offers one example. Rick spent a good solid decade following what we called the “Rick Hill Plan,” slowly walking down from working 40 hours a week to 10. He still keeps his toe in the water, giving him the community, mental engagement, and fun he gets from work while creating more time for family, friends, travel, and hobbies.

That plan fits Rick. Someone else may love working full time. Another person may want to leave work completely and move toward something new. Research on gradual retirement has found benefits to maintaining meaningful work and connection when the arrangement fits the person.

A financial plan tells us what is possible. Knowing the client helps us understand what those possibilities are for.

One family may buy a second home because it becomes the place where everyone gathers. Another may prefer the freedom to travel anywhere. One client may help the kids earlier because they want to see what the money makes possible. Another may value the confidence their children develop by building independently.

Research supports the importance of this fit. One study examining more than 76,000 bank transactions found that people whose spending better matched their personalities reported greater life satisfaction. The fit between the spending and the person mattered more than how much they spent.

The useful question is whether your spending looks like you.

Money can remain invested. Time with parents, children, friends, and our own health has a season. The way we use our resources influences who receives our attention, what receives our energy, and what we have room to experience now.

Understanding our preferences takes its own kind of work and awareness. Clients rarely arrive with perfectly articulated answers, so we help draw them out.

We may notice that a client lights up when talking about traveling with her siblings and grows quiet when discussing a second home. We may learn that “working less” is really about seeing aging parents more often. We may ask whether helping a child is meant to create opportunity, security, or connection.

We ask questions, listen for patterns, and reflect preferences back. Then we put numbers around the choices so clients can decide with confidence.

• Which trips leave you restored and excited?
• What do you hope helping the kids will make possible?
• Who and what do you want more time for?

The couple we met with is still in the gray. They are becoming more aware of their choices and more intentional about what they want their dollars to do.

Good financial planning helps turn wealth into a life well lived. For clients who are building, that means protecting what matters along the way. For clients with more freedom, it means giving more of their lives to what matters most.

For years, your money had a job. Now you may have more freedom to choose its next assignment.

Why the biggest challenge in investing is seeing clearly.

20+ years ago, I was sitting in a conference room when my former boss abruptly stopped the conversation. He wasn’t an imposing man physically. In fact, he was rather petite. But when he decided to make a point, the entire room listened. Looking directly at me, he said, almost as if he wanted to make sure I’d remember it years later: “Perception is reality.”

I remember thinking, That can’t be right. Surely reality wasn’t determined by how someone happened to perceive it. For years, I resisted the lesson. 

Eventually, though, I realized there was a deeper truth inside it. My boss wasn’t saying facts don’t matter. He was reminding me that our decisions are driven by how we interpret those facts. I’ve thought about that conversation many times over the years, and it cropped up again recently when I came across a fascinating chart:

The chart compares consumer sentiment (how we feel) with the performance of the U.S. stock market over the past 13 years (what happened). Intuitively, you’d expect the two to move together. If Americans are becoming wealthier, surely we should feel better. Instead, the two lines move in almost opposite directions.

Markets have boomed, retirement accounts have grown, investment portfolios have appreciated, and yet consumer sentiment is down…way down. Some investors feel worse even as they have, in many cases, been getting richer.

That disconnect reminds us that the hardest part of investing often isn’t what the market is doing. It’s accurately perceiving what’s happening while we’re living through it.

Every day we’re bombarded with information designed to capture our attention—not improve our judgment. Headlines compete for clicks. Social media rewards outrage. Every scroll offers another crisis, another prediction, another reason to worry.

At the same time, businesses continue to innovate. Workers continue to create value. Companies continue to earn profits. Diversified investors quietly participate in that growth.
Both realities exist at the same time.

The question is which one shapes our decisions.

That question, I believe, gets to the heart of investing. Because the biggest challenge isn’t finding great investments. It’s keeping our perception aligned with reality long enough to benefit from them.

Good advice doesn’t eliminate uncertainty. It helps us respond to uncertainty in better ways. It encourages patience when fear is loud. It provides perspective when the news cycle is overwhelming. It reminds us that our greatest investment decisions are rarely made in moments of excitement or panic, but through the quiet discipline of sticking with a thoughtful plan. It’s not exciting. It’s often downright boring. But it’s true. And over long periods, it’s remarkably effective.

We often talk about closing the gap between investment returns and investor returns. Investors frequently underperform the very investments they own because their perceptions lead them to buy and sell at exactly the wrong times.

Maybe that’s really just a symptom of a deeper gap.

The gap between perception and reality.

At Hill, you know what we call this idea. We call it taking the long view.

And by the way, I eventually realized my old boss was only half right.

Perception isn’t reality. But perception drives behavior. And behavior shapes outcomes.

Markets don’t require us to be smarter than everyone else. They don’t ask us to predict elections, guess interest rates, or identify the next Nvidia before anyone else. They ask something much simpler: to see clearly.

Our job isn’t simply to manage portfolios.

It’s to help our clients close the gap between perception and reality so they can capture more of what the markets have been offering all along.