I am sure that the message has been good for sales in some industries too as many more people are worried now.
I know my parents talk about it a lot more these days.
So, what do people do? They go hunting for higher yields. One of the easier things to do is to go to the banks and invest in products which promise yields which are much higher than the said interest rates.
Many also go to the stock market to look for stocks, bonds or preference shares which offer yields that beat inflation.
In the hunt for higher yields, we might want to keep this in mind:
It sounds similar to how we should try delaying gratification in consumption as we try to build wealth.
The suggestion that people who get in now could lose money as prices fall in future is there as well.
It could but with experts saying that interest rates could rise sometime next year, shouldn't people in long term and perpetual bonds be worried?
What about people in interest rate sensitive investments like REITs?
Well, if interest rates rise, it is probably because higher inflation demands it.
Bonds are not businesses. They are IOUs issued by businesses. They only have to pay the agreed coupon and nothing more.
Bonds tend to do badly in an inflationary environment as interest rates rise.
So, when investing in a REIT, one of the things to look at is the possibility of higher asking rents in future which involves a whole gamut of considerations which mostly can be neatly sorted under two headings, "supply" and "demand".
How big a hit?
I have no way of telling but I have an inkling that prices would in all likelihood overcompensate to the downside.
Depending on what our existing investments are, some will suffer more than others but chances of any investor escaping unscathed would be slim.
So, now, do we liquidate all our investments and do a Chicken Little which is what some people have done?
Well, we could but knowing that I don't really know, my preferred method has always been to stay invested while maintaining a high level of liquidity.
So, doing what I do means being able to continue receiving income from my investments which increases the level of liquidity that I have.
After all, what is the best way to ride out volatility? Having plenty of cash.
So, bonds or REITs, before we plonk in any money now, we might want to temper our expectations by reminding ourselves of the risk that comes with the instant gratification of yield.