Connect with us

Business

What to do when interest rates rise

Legacy Phuket Gazette

Published 

 on 

What to do when interest rates rise | The Thaiger
  • follow us in feedly

PHUKET: IT IS widely believed that history does indeed repeat itself. What was true in the past is most likely to be true today and in the future. Sure, the events and names of companies change, but general economic principles will apply.

When it comes to investing, one of the most important things for investors to understand is long-term interest rates. One must remember that you can lose money by investing in bonds if you do not hold the bond until maturity. As interest rates rise, prices come down. As prices of bonds rise, interest rates come down. Bond prices and yields have what’s called an inverse relationship.

image

For traders that understand this correlation, it can also be applied to stocks and bonds. When investors are confident, they buy stocks and sell bonds. If there is fear in the marketplace, however, investors dump their stocks and go into bonds for safety.

Long-term interest rates are currently near their historical lows. The only time interest rates were lower was just after World War II. This came as the United States emerged as the world’s greatest superpower and did not suffer the large-scale damage that Europe, Japan and Russia had. Money needed to go somewhere, and investors bought US bonds, because at the time, the US was the only place in the world where investors thought they would get their money back.

Interest rates have come down as the US Federal Reserve cut them as far as it could and instituted quantitative easing (QE) to bring long-term interest rates down even further. However, the Fed has started scaling back QE and has indicated that it will likely raise interest rates next year.

As indicated in the chart showing the trend of interest rates over the past two centuries (see above), when the Fed starts cutting rates, the rates keep falling. Conversely, when the Fed starts raising rates, the rates keep rising.

So it’s not a question of if rates are going to rise, but when. What that means is that bond prices will come down as rates rise. This has bond fund managers like PIMCO’s Bill Gross nervous. The great 25-year bull market in US Treasury bonds will finally come to an end, and it will be harder for bond fund managers to make money.

The good news for stock market investors is that there’s a lot of pent-up money sitting in bonds which will be looking for a new home. What will be seen is the great migration of money out of bonds and into stocks. This is what a lot of people aren’t considering and the reason why the stock market will continue going up.

There are literally trillions of dollars sitting in US bond funds. As investors reallocate their portfolios, they will reduce their bond fund holdings and boost their stock market holdings. This fact, along with the technological revolution, has me really excited about the stock market for the next 20 years.

This just leaves one critical question remaining: what are income investors to do? Besides bond funds, one strong sector that has performed quite well over the past few years for income investors has been real estate investment trusts (REITs).

For example, the Vanguard REIT ETF has averaged 9.29% annually over the past 10 years and pays a 3.78% dividend yield according to Vanguard representative Joseph Pendergast.

image

The problem for REITs is that as interest rates rise, it makes it more expensive for them to borrow money and buy real estate. Since rental prices can’t go up as fast, that means there’s less money for REITs to distribute to their investors. This will likely reduce the returns investors get from US REITs.

The solution is for investors to look at overseas REITs, particularly in Europe and Asia. Today, markets, including Japan, Australia and Europe, are unlikely to raise their rates any time soon. That’s why investors should consider the Vanguard REIT ETF and into the Vanguard Global ex-US REIT ETF. It offers all the protection and security of the Vanguard name, but gives investors exposure to property markets outside the US.

It’s important for investors to realize that rising rates are a near-term event. In other words, investors need to start preparing for it and adjust their portfolios accordingly.

Don Freeman is president of Freeman Capital Management, an independent US-registered investment adviser. He has over 20 years’ experience and provides personal financial planning and wealth management to expatriates. Specializing in UK and US pension transfers. Call 089-970 5795 or email freemancapital@gmail.com.

— Don Freeman

Keep in contact with The Thaiger by following our Facebook page.

Never miss out on future posts by following The Thaiger.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

Business

Governments & old media versus social media – who will win? | VIDEO

The Thaiger

Published

on

Governments & old media versus social media – who will win? | VIDEO | The Thaiger

We look at the recent changes made by the Australian and Indian governments to except control over the world’s biggest social media platforms. India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social. There is now an open battle between the rise of social media platforms and the governments and ‘old’ media that have been able to maintain a certain level of control over the ‘message’ for the last century. Who will win?

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told. The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

Keep in contact with The Thaiger by following our Facebook page.

Never miss out on future posts by following The Thaiger.

Continue Reading

Business

The social media giants in battle with ‘old’ media and world governments | VIDEO

The Thaiger

Published

on

The social media giants in battle with ‘old’ media and world governments | VIDEO | The Thaiger

“The rules signal greater willingness by countries around the world to rein in big tech firms such as Google, Facebook and Twitter that the governments fear have become too powerful with little accountability.”

India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social.

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The companies are also being made to publish a compliance report each month with details about how many complaints they’ve received and the action they took.

They’ll also be required to remove ‘some’ types of content including “full or partial nudity,” any “sexual act” or “impersonations including morphed images”

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told.

The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

Keep in contact with The Thaiger by following our Facebook page.

Never miss out on future posts by following The Thaiger.

Continue Reading

Business

Turbulence ahead for Thailand’s aviation industry | VIDEO

The Thaiger

Published

on

Turbulence ahead for Thailand’s aviation industry | VIDEO | The Thaiger

When the airlines, in particular, were asking the government to put their hands in their pockets for some relief funding in August last year, it was genuinely thought that international tourists would be coming back for the high season in December and January. At the very least local tourists and expats would head back to the skies over the traditional holiday break. And surely the Chinese would be back for Chinese New Year?

As we know now, none of that happened. A resurge in cases started just south of Bangkok on December 20 last year, just before Christmas, kicking off another round of restrictions, pretty much killing off any possibility of a high season ‘bump’ for the tourist industry. Airlines slashed flights from their schedule, and hotels, which had dusted off their reception desks for the surge of tourists, shut their doors again.

Domestically, the hotel business saw 6 million room nights in the government’s latest stimulus campaign fully redeemed. But the air ticket quota of 2 million seats still has over 1.3 million seats unused. Local tourists mostly skipped flights and opted for destinations within driving distance of their homes.

As for international tourism… well that still seems months or years away, even now.

Keep in contact with The Thaiger by following our Facebook page.

Never miss out on future posts by following The Thaiger.

Continue Reading
Phuket Thai food treats you need to try | VIDEO | The Thaiger
Tourism5 days ago

Phuket Thai food treats you need to try | VIDEO

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23 | The Thaiger
Thailand5 days ago

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23

In search of Cat & Dog Cafés in Phuket Town | VIDEO | The Thaiger
Tourism5 days ago

In search of Cat & Dog Cafés in Phuket Town | VIDEO

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21 | The Thaiger
Thailand1 month ago

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19 | The Thaiger
Thailand1 month ago

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18 | The Thaiger
Thailand1 month ago

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15 | The Thaiger
Thailand1 month ago

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14 | The Thaiger
Thailand1 month ago

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13 | The Thaiger
Thailand2 months ago

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12 | The Thaiger
Thailand2 months ago

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11 | The Thaiger
Thailand2 months ago

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11

Thailand News Today | Southern floods, Face mask fines, Thai Air Asia woes | January 8 | The Thaiger
Thailand2 months ago

Thailand News Today | Southern floods, Face mask fines, Thai Air Asia woes | January 8

Thailand News Today | 305 infections, No happy ending for massages, Phuket quarantine mooted | Jan 7 | The Thaiger
Thailand2 months ago

Thailand News Today | 305 infections, No happy ending for massages, Phuket quarantine mooted | Jan 7

Thailand News Today | 10,000 schools closed, 900 new migrant infections, Gambling crackdown | January 6 | The Thaiger
Thailand2 months ago

Thailand News Today | 10,000 schools closed, 900 new migrant infections, Gambling crackdown | January 6

Thailand News Today | PM reverses lockdown, Southern P.D.A. crackdown, Covid update | Jan 5 | The Thaiger
Thailand2 months ago

Thailand News Today | PM reverses lockdown, Southern P.D.A. crackdown, Covid update | Jan 5

Follow The Thaiger by email:

Trending