How could higher interest rates impact your portfolio? The mind-blowing interest rate lows we are experiencing have been in place for what can only be described as an eternity with no end in sight.
These rates were put in place as a measure to stimulate a struggling global economy when the financial crisis of 2008 hit markets extremely hard, causing a never seen before environment.
DevDosh Ltd thinks we can safely say that when these interest rates were first introduced nobody and literally nobody thought they would still be in place nearly 10 years on.
This has created a place where the markets have become reliant on the easy money environment that the central banks have created, and changes are needed to bring a sort of equilibrium back to the markets and the road will be long and arduous, paved with many potential risks.
When the economy is taking a nose dive and needs some stimulation interest rates are the of the tool of choice for the Central Banks to get things moving again. For DevDosh Ltd, low-interest rates mean increased borrowing which in turn means an increase in spending.
UK interest rates are presently at levels never seen before in the BoE’s entire 323-year history, a response to the global financial crisis of 2008 and then to the 2016 UK vote to leave the EU.
The Bank of England base rate influences a myriad of financial products including the likes of mortgages, loans, credit cards and the interest made on savings. Any increase in the base rate increases the cost of borrowing for the banks, these costs are then passed onto the consumer borrowing from said bank.
On the other hand, this is fantastic news for savers who see their deposits growing at a faster rate. Interest Rates have been below the rate of inflation for a length of time that has seen many people’s savings pots steadily diminishing as the cost of living outpaces the interest their savings can earn.
In DevDosh Ltd opinion Interest rates changes can move financial markets, especially if there is an unexpected increase, but this is just one way they can impact your investment portfolio.
Higher interest rates are great news for the stock market has this means the economy is recovering and this means bigger profits and superior stock performance.
The downside is the cost of borrowing increases for companies which impact their profits.
Although we have seen monetary policies becoming stricter and lending criteria more stringent, indicating an interest rate rise is likely very soon, any instant or dramatic rate hikes will do nothing to help the situation and are highly unlikely.
The connection between interest rates and bonds is fairly clear cut. Bond yields are correlated to interest rates — they go up when rates go up, and vice versa.
DevDosh Ltd has seen the emergence of alternative investment funds concentrating on the property investment due to its resilience to global conditions and the returns that can be generated regardless of the economic climate, this is even more so in the UK especially in the city of London.
The property took a bit of a hit with the Brexit vote but has recovered nicely and steady growth is still on the menu.
For more investment detail, please visit DevDosh Ltd today.