Investors are growing more optimistic and the time is right to start reflecting on the impact that higher interest rates will have on your investments. The investors who have experience numerous boom and bust cycles may be interested in the fickle nature of the share market emotions.
Money is being poured into the riskier assets and the turnaround is remarkable. There are many reasons this is the case; it could be that investors believe that the threat of a second depression has been averted or they may fear the missing out of further gains in the market. Whatever the cause, the influx of the cash in the market is pushing the rates up.
As the global economy rights itself it is going to result in higher interest rates almost as sure as day follows night. Get prepared. The reserve bank in Australia already has a hand on the economic brake as it is preparing to raise rates, but what does it mean in terms of your portfolio?
Higher rates may mean the recovery may be cut short. Lower prices with higher yields need to tempt the investors to place their money at risk; the higher rates make the property asset class unattractive. The rise in rates might also dampen the almost nonexistent demand for new developments. The deck is stacked in favor of the tenants with the leasing incentives set to take off.
Income securities that have fixed payments will suffer while the floating rate securities will offer protection against the higher rates as long as the issues don?t fall behind on repayments. If the credit card and mortgage rates go up the discretionary retailers may have declining sales. Retail spending on such frivolities as buying a holiday or buying a second home television might decline leaving retailers in the lurch.
These are just some examples of the effects of raising interest rates. There is more to consider and you should look closely at your portfolio if the interest rates begin to rise.
Find out more about the Share Market from Andrew Baxter, a hedge fund manager and expert advisor that can offer some insights and tips for investing.
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