Rising Rates- what to doGuy Conger
That interest rates are rising, and set to rise for years to come, should be no surprise to you.
Nor are they difficult to forecast. After all, the granddaddy interest rate cycle of 64 years in duration, which I’ve tracked back thousands of years in economic history, bottomed in June 2012, just as I said it would.
Rates have risen steadily since then. When the next peak in interest rates comes, on the half cycle of 32 years, in 2044, interest rates will exceed the highs of 1980, at 20 percent-plus.
That’s a long way off, and rates will climb pretty steadily the whole time, sometimes thrusting sharply higher, and sometimes pulling back or going sideways.
But there are two important “big picture” aspects of a rising interest rate environment that I want you to be aware of.
Mortgage rates are headed higher for some time to come. So if you aren’t a homeowner yet, buy your home as soon as possible.
First, from a longer-term perspective, and for your investments. As I have discussed many times before, although the initial turn higher in rates is considered bearish for most asset classes, in reality, rising interest rates are bullish long term. All great bull markets in stocks, commodities and, yes, even real estate, occur during rising interest rate environments.
In other words, as far as the markets go, and with a longer-term view, do not fear rising interest rates. Gold, stocks and real estate prices will all rise together in the years ahead, with rising interest rates.
Second, from a short-term perspective, regarding your personal finances, take appropriate steps now, while rates are still extremely low on a historical basis.
A. If you haven’t already done so, refinance any property mortgages you have and do so on a 30-year fixed rate. I recommended that in the summer of 2012, when rates were at all-time lows, and if you acted on my advice, you are sitting pretty.
Nevertheless, if you have not refinanced, refinance now!
B. If you are not a homeowner yet, buy your home as soon as possible. Same reason: Mortgage rates are headed higher for some time to come. Opt for a 15- or 30-year fixed mortgage.
If you are looking to buy or own your business’ commercial building, do the same.
C. Importantly, stay away from revolving debt loans for consumer goods, etc. Those rates are already usurious, and they are going to go even higher.
Ditto for credit cards. Pay off as much credit card debt as you can, and stay out of debt on your credit cards. That way, instead of paying those usurious rates, you will be able to save the money and invest it in instruments that will offer you a rising rate of return via rising rates.
Lastly, be sure to keep abreast of my colleague, Mike Larson, and his work on interest rates. He’s on top of the many different profit opportunities that are available from a rising interest rate environment.
Posted: February 5th, 2014 under General.