How might a change in interest rates affect your savings and investments?
Posted by: Swindells FP, on September 2, 2014.
If you hold fixed interest bonds within your investment, ISA and pension portfolios you may have wondered what changes in interest rates will do to your returns.
As we’ve seen over the last few years no one can predict either the time when interest rates will change or the amount by which they will change.
One certainty is that when rates do rise, bond prices will fall because the two are connected like the opposite ends of a see-saw.
This worries some bond investors who feel the looming threat of an inevitable fall in the value of their investments. These investors should not worry.
Imagine you own an investment property that you let. If you spotted a headline at a newsstand in a foreign airport predicting a collapse in house prices, would you immediately call an estate agent and instruct the sale of the property?
No: you would investigate where there story related to, decide whether it was relevant to you and act accordingly.
What if you saw the same headline in your local paper? You still might not rush to sell. First, the property is a long-term asset that you will own for years and should expect to overcome short-term price shocks. And second, your tenants will continue to pay an income whatever the value of the property.
Take the long term view
There’s another parallel with bond investing here in that you should share the same long-term view with bonds as you might with a property investment; and that bonds will continue to pay an income as their prices change.
Here at Swindells Financial Planning, we take a considered, long term view which includes diverse, global investments, with many fixed interest bonds from many different countries and sectors. We do not try to predict the future but stay disciplined in the long term view and diversification.
If you are interested to find out more about pensions and retirement planning we’d love to welcome you our next seminar. You can reserve your place on our Upcoming Events page.
If you would prefer, you can arrange an individual consultation by contacting us.