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Tuesday, July 10, 2007

Higher interest rate in the future?

We have gone through several years of low interest rate. This has produced the following:

* high stock prices
* high property prices
* high bond prices

Interest rate is expected to increase globally, due to inflation. When it happens, you can expect the following:

* drop in asset prices (stock, property, bonds)
* higher interest on bank deposits and money market funds

Lesson: do not lock your investments in high asset prices, if possible. Have some money in short term deposits, so that you can benefit from the increase in interest rate (if and when it happens).

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