“People usually think that when interest rates go up that’s in their favor, said Blonski, especially for their investment. But actually a high interest rate will impact the value of their investment.” Blonski invited his clients and the community to a talk he hosted on February 12 at The Lodge in Sonoma about the importance of understanding interest rates.
The springtime like weather that Thursday evening was ideal for the casual gathering, the French doors leading out to the courtyard were kept open as over a dozen people attended. Staff of the Renaissance-Marriott provided an array spring rolls, hors d’oeuvres and culinary treats that delighted many. This talk was the first one of the year. Blonksi likes to have talks and presentations regularly on financial matters for his clients. But he also likes to provide them for the community, with no sales pressure as a way to better serve and help people.
The guest speaker for that evening was Andrew Prupas of Franklin Templeton of San Mateo. Both men shared their knowledge and insight answering questions. While each have their particular area of expertise in finances, Blonksi wanted to let the audience know that the variations in interest rates are important to examine when setting investment goals.
“Typically, The Federal Reserve like to help keep interest rates low or ‘fixed’ he said. And, when the economy is booming, it likes to ‘slow it down’ a bit.” The reason for that Blonski explained is because they want to keep things steady and not get out of control.”
But in reality, there are things that no government or anyone can control, especially with regards to world events. World events tend to have an impact upon the stock market. Yet how one reacts or rather responds to change is usually an indicator of what the response to interest rates will be. This fact is also key in understanding investing.
A person who wants to truly invest must be committed to the long-term. From this vantage point a conservative interest rate is usually the route, avoiding the sensational stocks or “get-rich-quick’ impulse.
He explained the difference between bonds and stocks. “Stock represents a ‘share’ of ownership in a company. A bond is in effect a bit of loan in which the bond issuer, be it a government or a corporation promises to pay back to the bond holder with interest by a specific date.”
When people buy “U.S. Treasury bonds or T-Bills,” for example, he said they are in a sense, lending their money to the U.S. Government. and the bond certificate is in effect an I.O.U.” Of course each type of bond has its own set of rules, of which investors should take the time to know.
“Typically, low interest rates are good for business. Low interest rates allow businesses to obtain loans or loan out money to other businesses. But, said Blonski, low interest rates do not last forever. Interest rates do go up.”
A savvy investor takes time to look closely at any and all interest rates when considering a loan or making an investment. “When people ignore these things, that is when they get into trouble.”
“Stocks and bonds with higher yields-returns tend to have high interest rates. But that is because the risk is greater.” Again, Blonski reiterated it all depends upon the investor and her or his goals.” People who are not able to take risks financially should not buy stocks or bonds that have a volatility to them.”
Blonski like many who seek to help people with their money, believes it is the investor who seeks out the long-term is the one who will benefit. Taking time to build a financial portfolio that is diversified and tailored to meet an individual’s financial needs is wise.
For example a person entering into retirement with a budget would perhaps look at “low-risk” investment strategies, whereas a younger person who has some extra money might want to consider taking more risk. Regardless of wheather an investor is young or old, they key factor to recognize is what are the financial goals? And, what are the circumstances in which that investor is in at the present time? A change in job, the purchase of a house, a baby on the way, these must be taken into account when investing. Financial experts and managers are always on the lookout for the rise and fall of interest rates. While there is no fool-proof way of predicting how stocks and bonds will perform, one thing financial analysts do constantly is look at the entire market and study its history. Checking and double checking facts, figures in real time is their job. So, when they talk about interest rates and ask an investor to consider the rate, it is best to listen and ask them to explain.
A licensed and experienced financial advisor can help. And, a savvy advisor has the help of an experienced team, through a firm or network of dedicated portfolio and fund managers. Examining interest rates, maturity dates and yields and returns are just as important as what type of stock or bond you buy. Will it meet your goals and does it fit your current circumstance without causing you a significant financial vulnerability? The interest rate scenario is part of that evaluation.
For more information about the importance of interest rates consult with your trusted, licensed financial advisor.
