The Feds Raised the interest rates?!?!

pexels-photo-241544.jpeg

Misconceptions. So. Many. Misconceptions. Why don’t we, as a society, have a clear universally understood set of rules for investing?

Those were the cries of what I heard many years ago when the housing market collapsed during the 2008 recession. I remember my parents lost nearly 40% of their portfolio even though they were not directly tied to the real estate bubble. In addition. my father got forced into early retirement. Sadly, he and millions of other Rustbelt “Made in the USA” car building veterans wondered what life had in store for them now that they were forced to live on half their income many years before they were ready. As a result, I now see too many sixty-somethings returning to work. Too old to get a factory job, these men are now relegated to greeting the general population at large department stores which specialize in selling plastic crap made in China. Do you see the irony here?

This scene just described and many other sad situations have forced me to start writing about my adventures in the investment world. I do not have all the answers here. But I can share what works for me and what I have learned. Today is the first post in my investing series and lessons on money. How does investing work and how can we grow our funds? Perhaps we can create some rules of engagement. Perhaps we can avoid investing in schemes we don’t understand based on emotions.

Recently I saw a headline in the news that really irritated me. The media really makes a living based on fear so I thought I would put some education behind their hype.

Specifically, the Federal Reserve raising interest rates just means that bank lending to the mass population will slow down. So if you have cash and you are looking to buy a home or a car you have less competition! This means you can haggle a better deal. This is also true for smaller priced items like electronics etc.

Bond rates will lower. Bonds follow the market, so when interest rates go up, Bond prices go down. People always claim that bonds are solid investments, but I don’t fully understand that claim since interest rates will go up in the future. Scary time to invest in bonds since interest rates can’t really go any lower. Do your own research, don’t just take my advice.

The sky is not falling unless you are in debt and were counting on a lower interest payment on your loans. Aside from that, this post is just another reminder that Cash is king! I am going to post a series of blogs that explain all the benefits of a debt free lifestyle in the future. Stay tuned!

Bond loss due to raising rates.
Here’s a breakdown of the losses by various bond maturity ETFs: You can see that long bonds saw the biggest losses by far, while short-term bonds barely budged from the rise in rates. This also makes sense from the perspective of the current yields and trailing 5 year performance numbers: 
Source

Further Reading: Bond Returns & Rising Interest Rates

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s