If you don’t understand the interest rate and it is impact on valuation… there is nothing to discuss here.
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If this is really true, then being a long term investor is nothing more than a random casino. There is no strategy to pursue, no skills to master, and being one is rather pointless. You are just hoping.
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I think it’s fair to say the US economy is in general more resilient than others, without giving a nod to how much specific policies helped or not. Further, we don’t know the long term implications to really give an accurate scoring of the response. You and others seem to be hyper-focused on affordability or the lack thereof. Part of what we may look back on is what role COVID spending played in making the problem substantially worse. With it, future tax revenues having to go to service the debt incurred as part of this response.
Like so many things, people mistakenly tie the success or recovery to a political policy when it may have little to do with it and more so the nature of our economic system vs other countries.
I understand how interest rates impact asset valuations. I just don’t think interim movements in interest rates nor forecasts on where they may go play a role for long term investors. Again, if they do, can you provide me with an example of how forecasting rate movements informs your decision process?
I’ll pose the same question to you that I did to @Kingran, can you provide an example of where predictions on near term interest rate movements or the movements themselves impact your decisions on investments that you intend to hold long term?
I wouldn’t use the term hoping. Largely, one is making the assumption the risk premium accommodates a variety of interest rate environments but probably does assume those rates remain within some range, but there is no guarantee. I’d put it this way. If the expectation is a 12-15% CAGR, I’m not particularly concerned about whether the FED moves interest rates and where, obviously with the exception of rare and extreme situations, but maybe not even then. The goal is to own assets that function in a variety of interest rates environments, not because of them. YMMV.
Short term investors, traders, and speculators have to worry about a number of macro factors, including movements based on interest rate policy. I’m just not convinced there is any way to consistently predict those movements.
You claim you understand and then you claim they have no impact by just inserting “interim”… I can provide many examples, but this is a futile conversation where you will be continueously playing word games. I am least interested in playing word games. It is your money, your decision.
Good luck.
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I was trying to be as specific as possible and since we are speaking to predictions on what the Fed may do next not 5 years from now. But feel free to respond in any manner you choose with an example.
I’m guessing you won’t because it really is sort of worthless information and provides almost no insight into long term investing. I’ll ask it another way, how are the upcoming decisions by the Fed impacting your long term investment decisions?
My money and where I place it is heavily influenced from the business up. In fact, I can’t think of a single macro factor other than the stability of the country and market where the business resides and conducts its activity that play a role in the decision making.
I can. In 2022, I reduced my bond exposure to zero. Rates were going to go up and bonds, as well as other interest rate sensitive investments were a bad option. Once rates peaked and started to go down, I reallocated back into a little bit of fixed income (mostly in my 401k).
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In fact I have answered that particular question in this thread already. Your inability to read and have an open mind is not my problem.
You have a view and not going to be open to listen to anything else. Why waste my time. You win…
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For ex: REIT’s… Nothing wrong with the business. Except the valuation changed due to interest rates.
See the stock price peaked in early 2022…
Yet the business continued to perform very well…
If you don’t understand the drivers of valuation for a business… then you don’t understand anything about the business.
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It was, but only in hindsight. Back then inflation just kept going up. Locking in at 13% might have seemed like a big risk. If you did, you made a bundle. Not just on the interest but the value of the bonds increased as well.
I’ve been pounding the drum for years that a sub-4% mortgage was also the deal of a lifetime. I currently have two of them. I have no plans of paying either one of them off. Why would I? The bank is effectively paying me to use their money.
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Please feel free to repost your earlier response, if I missed it. I don’t think you answered the question. What I think is there is a lot of pontification on Fed doing this or Fed doing that which has no real bearing or at least shouldn’t inform long term investment decisions. It is amazing how much macro information is really just noise.
Your example is duly noted. I still view your approach as trading and related to bond assets. In terms of my view as a holder of equity assets and looking for long term uninterrupted compounding of growth, I don’t see the utility.
I don’t own any REITs (which are equity and mentioned above) but if I did, I would have sold those as well. That is why I mentioned interest-rate sensitive investments.
The flip side of that is that when rates are going down, REITs tend to outperform. Again, I don’t typically own such but 2024 and 2025 were generally good years to own such. Some sectors more than others.
Of course, tech and emerging markets tend to do better when rates are headed down too.
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Again, this is the domain of the trader. I would fully acknowledge that tech and more speculative investments will do better when rates are lower vs higher. But, again, for those of us not looking trade, does speculation on Fed movements add anything?
If we assume, and you may agree or disagree, most long term investors are best served by buying and holding assets long term and making as few buy and sell decisions as possible. Once you take that perspective, it really doesn’t matter much the incremental moves. But again, for the trader or those looking to time the market, I understand why this information plays a role. I’m just not convinced that most people improve their results by doing so.
If you are familiar with the “coffee can” investing strategy, I am a big proponent of this style. You buy what you intend to buy and bury it in the coffee can in the backyard and then largely do nothing. As Chris Mayer author of 100 Baggers would put it, if you are looking for businesses that can 100x, you are now looking at decades. When that becomes time commitment, nearer term macro events and predictions have little impact on the investment decisions. In fact, it almost solely boils down to the attributes of the business and whether it is one that can stand the test of time.
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I guess it depends on what one deems as few. I can think of two-three times in the last six years where going to 100% cash would have been a smart move for long term investors. Personally, I only took advantage of one of those moves but it added roughly +25% to my net worth and has allowed me to consider retirement 2-3 years early.
Agreed - as I likely should had done with my most aggressive long term investment: QLD. I have absolutely left gains on the table by occasionally selling it - but of course hindsight is 20/20. I made a crap load by selling it last year before the tariffs and then rebuying it near the bottom too.
We all have to make decisions we can tolerate.
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I view complete moves to cash and doing so 2 or 3 times a trading strategy. More importantly, it interrupts long term compounding of assets and creates tax consequences.
Definitely, we need to choose the plan that keeps us in the game.
It depends on whether these moves occur in a tax advantaged account.
Some people time the market to limit losses, and reinvest at the bottom.
It’s risky, but maybe not as risky as buying into the SpaceX IPO…
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If inflation goes up to 15% … for 30 years, then we are finished anyway, so none of it will matter.
Exactly what happens when inflation suddenly rises quickly. Volcker or anyone else (even the current guy) would do it.
I think I saw 30-year TIPS trading at 3% recently (this morning).
Unfortunately, you only get one or the other. That’s the way bonds work. Either you keep the bond and receive 13% for each year over 30 years and then receive the original principal back -OR- you sell the appreciated bond at the higher value and stop receiving the 13% each year.
All actual investment results can only be looked at in hindsight!
And, yes, it would have been viewed as risky. Had it not been viewed as risky, more and more people would be bidding up the price of those bonds, and that would have driven the yield down. First guy gets 13%, next guy is willing to take 12.5%, next 12%, next 11.5%, etc. Before you know it, you’re suddenly back at “normal” rates around 5-6%.
Yep! One of my siblings got a 2.875% rate on a refi and I’ve counseled them to keep that mortgage for as long as possible even if they can pay it off. “Free” money can be invested elsewhere for a better return.
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Yes, it does matter.
Almost no one times the bottom or the top and very few get both right. If you happen to be one of those, please share your track record.
I never buy any IPO’s. Peter lynch average over 30% a year managing Magellan funds. His average shareholder made 7% or so per year selling in and out of the fund trying to time the market. The reality is those that often sell out never really want to buy back in at the bottom. As lynch has said, it’s not about timing but time in the market.
I’m not sure I understand where you’re getting your data. Investopedia has an article where they calculate the increase in National debt by president by percent.
Ignoring the debt incurred under Wilson and FDR (World Wars), the largest increases Investopedia calculated by percent change were:
Reagan 161%
GW Bush 73%
Obama 71%
G HW Bush 42%
Trump 1st term 40%
Nixon 34%
Biden 32%
Just curious where your numbers (like doubled) came from.
https://www.investopedia.com/us-debt-by-president-dollar-and-percentage-7371225
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