I’d like to continue our theme investing dangerously and risks that investors face.
Today we will discuss, The danger of falling interest rates: A recurring discussion point over the past few years has been interest rates and when The Federal Reserve plans to lower them. Folks looking to purchase a home and retirees living on bond-generated income are keenly interested, hoping for the best possible outcome for themselves.
If you are in the market to buy a house, don’t pray every day for lower rates. The reality is, when rates come down (and subsequently mortgage rates drop), housing prices will go up in value. Interest rates and housing prices tend to have an inverse relationship. It’s far better to look for a home you can afford in today’s interest rate environment. This may mean looking at smaller homes or in a different community. Once you are in the real estate market as a homeowner, you can always sell your home in a few years and use the proceeds to purchase a new home in a more desirable area. Waiting for an optimal interest rate environment may cause you to wait indefinitely.
For retirees who are concerned that rates will fall, which will cause them to generate lower interest on their bonds, I’d suggest exploring other ways to generate cash from your portfolio. This may include selling stocks that have appreciated in value, incorporating a Single Premium Immediate Annuity, and waiting to claim social security until age 70 to obtain a higher lifetime benefit. Having a portfolio that is entirely dependent on interest rates is a recipe for disaster.