Bonds & Interest Rates! What's Going on? Ep. 88

Many of us are seeing these shocking inflationary prices in our everyday life, and the government is cognizant of it. Interest rates have been very low for a very long time, and the Federal Reserve has not had much success increasing them in recent years. It normally causes volatility, which is what investors don’t like.

The market prices in events before they happen. That’s why the government has been talking about raising rates since last year. Now we’re closing in on the projected date to begin rate increases and investors are nervous.

But here’s the catch. The government seems to feel they have to raise interest rates to lower inflationary pressure. It’s a Catch-22, and according to the head of the Federal Reserve, the plans are set to move forward with rate hikes in March.

Now, you may have heard Facebook stock prices fell off a cliff recently. MSN put it this way, “The meltdown in highflying technology stocks like Facebook is just the start of the financial changes that will probably result from the Federal Reserve’s decision to end a prolonged era of free money and make borrowing more expensive.”

Technology stocks are inherently sensitive to interest rates, so when rates go up they tend to go down. One explanation for this is tech companies use debt to finance growth and when debt gets more expensive profitably reduces.

https://www.msn.com/en-us/money/markets/facebook-s-faceplant-on-wall-street-could-be-just-the-beginning-for-some-tech-stocks/ar-AATvqC2

So, interest rates increasing may impair the growth of publicly traded companies because they can’t borrow as cheaply.

Before the revelations about what the Federal Reserve would do with interest rates or before the volatility in the market started this year our clients had a plan in place to weather the good times and the bad.

When we have years ahead of us before we need our savings to supplement our retirement income, what’s happening in the markets may not be as big of a deal. But when we’re five years out from retirement, or in retirement, the approach should change to an all-weather plan.

I hope your plan has been stress tested and is ready for the road ahead. If you’re not sure, call our office at 864.641.7955 to figure out if your plan is ready.

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