What is going on with interest rate rises, and what should I do?
In 5 years, I have only written about what is happening in financial markets twice before, on the election of President Trump, and when Covid first struck.
The message was the same both times, keep calm and carry on. And it’s the same this time too.
The direction of financial markets are impossible to accurately predict. And any actions taken out of fear are often the wrong ones.
The markets are a roller coaster. All investors are on it, and right now we're entering a scary bit. But the worst thing for most people is likely to be trying to get off, or switch carriages.
And the financial markets and media are great at whipping up fear and concern. It’s how they get paid. So what to do? The same advice applies:
- Check your fund is the right one.
- Pay little attention to scaremongering.
- Carry on with your long term plan.
What is happening?
What we are experiencing now is a rational response to a rise in interest rates. Much money has been spent by Governments to combat Covid, and when more money chases the same pile of goods and services, prices, inflation and interest rates go up. And when rates go up, markets go down.
And at the same time, Covid has bought supply chain problems as factories close and ports clog up. That means more money chasing fewer goods, which makes inflation even higher.
But both these things are unlikely to be long term events.
And, as always, the financial markets are responding in the short term, when most investors are there for the long term.
And there will be winners and losers from rising interest rates. It is very hard to predict who they will be, so it’s best to have a very diversified fund.
All our growth, balanced and conservative funds have over 3,000 investments in 23 countries. That hasn’t changed in 5 years, and won't now. The reasons they are invested this way are as valid as ever.
Managing Director, Simplicity
For more information, check out Sam’s recent stuff article Inflation? What inflation?