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How to invest with lower interest rates in 2024

Jan 07, 2024

Hello Stoic Investors,

Today we're going to talk about how interest rates impact our investment decisions and the overall

economic landscape.

 

The reason why we're going to talk about this is that after a few years in which we have seen interest rates

just go up, it seems it's very likely that the Central Bank, the FED, will lower interest rates under 3%, which

can lead to a very different economic condition.

 

Even though we are not sure what will be the actual interest rates cut, we need to totally understand why it's

so important.

I can say that interest rates are the most important factor that will determine whether you make money in the

stock market or not.

 

Everything Depends on Interest Rates

In the graph, we can see the level of interest rates of the past 20 years, and how they keep changing.

They are first of all related to the Central Bank, which is an authority that each country has, and that has two

important goals:

Bring simultaneously economic prosperity and stability of prices.

 

This two goals lead to an economy that is growing but at the same time has low inflation, and it's not that

easy to achieve because most of the times these two goals are difficult to obtain together.

 

The main way through which a Central Bank can achieve them, is moving interest rates up and down. More

precisely, lower interest rates stimulate high growth at the cost of high inflation, and higher interest rates

produce low inflation but also low growth.

 

Of course, the central bank has also other ways to achieve these two goals, but so far the main thing is

always interest rates.

 

Why Interest Rates Matter to Investors

The first important thing to know is that when interest rates are low, borrowing money becomes cheaper.

This has a direct impact on various aspects of our daily financial lives, from the rates we pay on mortgages

to the cost of personal loans, and even the financing of major purchases like cars.

 

The interest rates we encounter aren't arbitrarily set by individual banks or financial institutions. Instead,

they are largely influenced by the central bank's policies.

Banks may offer slightly varying rates, but generally, they align closely with the central bank's baseline.

This is because the central bank sets these rates as part of a broader economic strategy.

 

When the central bank lowers interest rates, it's usually aiming to stimulate economic growth, because

cheaper borrowing costs encourage both individuals and businesses to take out loans for spending and

investment, which in turn stimulates economic activity.

On the contrary, when the central bank raises interest rates, it's often an effort to temper inflation by cooling

down an overheated economy.

 

In summary, the central bank's manipulation of interest rates is an important mechanism for managing the

economy, influencing everything from personal loans to the broader growth and inflation rates.

 

What Should We Do in 2024?

In theory, with lower interest rates, we should expect a positive return.

However, there’s one thing we must consider:

The stock market is driven by expectations of the future, not current realities.

 

This means that today's stock prices reflect what investors think will happen in the next 12 months.

For example, if there's news of future interest rate cuts, the market reacts immediately based on this

expectation.

 

This is crucial for investors, especially beginners, to understand.

By the time a market trend is obvious, it's often too late to capitalize on it, as the market has already

adjusted or "priced in" these expectations.

For example, if interest rates are expected to decrease, the market reacts in advance, making it too late for

investors to benefit when the actual decrease occurs.

 

Moreover, expectations about interest rates are closely tied to perceptions of economic growth.

Lower interest rate expectations usually lead to expectations of higher economic growth, causing the stock

market to rise, and the opposite is true for expectations of higher interest rates.

 

This shows the importance of anticipating market expectations in the coming 12 months and understanding

the complex relationship between interest rates and the economy, which has a significant impact on both

individual financial decisions and the broader stock market.

Understanding this relationship and the expectations surrounding interest rate changes is crucial for long-

term investors looking to make informed decisions in 2024.

 

So, note down these points and start investing today:

1. The Central Bank's manipulation of interest rates directly impacts economic growth and inflation.

2. Lower interest rates generally encourage borrowing and spending, while higher rates tend to have

the opposite effect.

3.The stock market is driven by expectations of the future, not current realities.


 

See you again next week.

 

Whenever you're ready, here is how I can help you:

1. Take advantage of all our Free Resources and start your journey as Stoic Investor 

2. Book a Free Consultation to ask your investing questions and we will point you in the right direction

3. Watch hundreds of Video Testimonials of Stoic Money Clients from 25 different countries

About Me

I am Vittorio Rigato, the Investing Coach behind Stoic Money.

I invested for more than 8 years, both for myself and by managing the 7-figures retirement account of my family.

After my¬†Master Degree in¬†Finance & Management,¬†I worked in the FinTech industry in Frankfurt (Germany) and managed financial products with value up to ‚ā¨100 Millions.

In 2021 I have founded Stoic Money to teach employees and professionals worldwide how to invest to reach $1,000,000 Net Worth and beyond. Many of them reviewed Stoic Money service with a video testimonial here.

Multiple Finance News Websites like Yahoo Finance and Euronews talked about Stoic Money mission and services.

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