Why Paying Attention to Interest Rates is Pointless for Investors
I am 99.9% certain that there are other financial advisors who will see this title of this post and think that I am absolutely nuts. They will opine, “Of course interest rates are important!”. Yeah, they are wrong. At least when it comes to using interest rates as a predictor on investment returns.
I won’t bore you with correlation statistics, statistical significance, and charts that back up my claim—they are in the attached article.
What I will do is ask you to jump on to Google and do two things:
- Google “Historical S&P Prices.” Look at the graph.
- Google “Historical Interest Rates.” Look at the graph.
Now “eyeball” them and tell me about the correlations that you see. And email me if you see one, because we are going to co-author some papers that will get us widespread recognition and likely some serious awards! Not to mention the possibility of developing a new model for investing successfully. But I seriously doubt you will find any such correlations or factors
I always go back to my two “truths”:
- Twenty years from now there will be more people on this earth.
- Twenty years from now the world economy will be bigger.
While I don’t have it as a “truth,” I do believe that there will be interest rate fluctuations during these coming twenty years. But that WILL NOT negate the two aforementioned truths.
And that is why as an investor, you should NOT focus on interest rates as you develop and implement your investment thesis.
The linked article goes into detail on this topic. Read the article here.
- Are you paying too much attention to interest rates when you invest?
If so, could you use some guidance and support applying the wisdom of this post to your current investment plan?
Feel free to send us an email or give us a call.We’d love to have the opportunity to hear about your situation and your thoughts on this post.
Enjoy the read and remember, it’s NOT about the money. It’s about how the money supports your goals!
At F5 Financial Planning we focus on helping individuals and families find balance between faith, friends and family, fitness and finance. We make sure that they have the financial freedom to enjoy those things in life that are important to them. And while we believe the left-brain facts and data are critical; we work with our clients to get them in the right state of mind to focus on the goals they want to achieve.
Some other posts that you might like:
- Should You Pay Off Your Mortgage?
- How Are DFA Funds Different than Index Funds?
- How Families Can Calculate Retirement Income Wants Versus Needs
- What Your Grandma Taught You About Investing
- Making Sure You Can Collect a Paycheck in Retirement
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F5 Financial Planning provides fee only financial planning services to Naperville, Plainfield, Bolingbrook, Aurora, Oswego, Geneva, St. Charles, Wheaton, Glen Ellyn, Lisle, Chicago and the surrounding communities. Curt Stowers is a fee only financial planner. He has passed the CFP® examination. Contact or visit Curt at his Naperville location.
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