Will the Fed Raise Rates, and What Will It Mean For You?
Why if you invest in paper assets it might be time to up your financial education
In the last few weeks, there has been a lot of chatter about whether or not the Fed is going to raise interest rates. In a lot of ways, the Fed is in a precarious position. They've propped up the economy for so long with artificially low interest rates that they have to time the increase of those rates nearly perfectly or risk an economic crash.
As San Francisco Federal Reserve Bank President John Williams said, "If we wait until we see the whites of inflation's eyes, we don't just risk having to slam on the monetary policy brakes, we risk having to throw the economy into reverse to undo the damage of overshooting the mark."
What could this damage look like?
Spencer Jakab, blogging for The Wall Street Journal provides one example. Jakab points out that years of "ultra-low interest rates" led to lots of average Joes and Janes investing in "into funds owning stocks or bonds offering at least a little bit of yield."
Jakab writes, "…a recent paper co-authored by a Fed economist warned of the possibility of 'run-like behavior' in such funds when rates eventually rise."
If you know anything about bubbles, the term "run-like behavior" should raise your eyebrows.
For years, the Fed has pushed people into investments through low interest rates that will start to underperform at best or crash at worst once those rates are raised.
The average investor always gets hurt
For the professional investor who knows how to read the signs of the times, and for big banks on Wall Street who get a heads up well ahead of the time, this is not an issue. But as Jakab rightly points out, the average investor is usually left in the dust.
This is the problem with investing in funds. They are designed for those with low intelligence-those who don't actively manage their investments. When markets drastically change, however, these passive investors lose-often big.
Increase your paper asset IQ
Personally, I'm not a big fan of investing in paper assets like stocks, bonds, and mutual funds. I prefer real estate, commodities, and my business. But paper is a legitimate asset class where your can do well-provided you know how to play the game.
Today might be a good time to take a look at your portfolio, and to take back control of your investing. If you don't know how to invest like a pro, it might be time to start your education.
If paper assets are your game, I suggest you get to know Rich Dad Advisor Andy Tanner today. Because if rates get raised, you might be in for a bumpy ride.