Investing 101 - interest rates

on-ramp · 02-11-2004, 06:57 PM

given that interest rates are so low, is there a stock(s) I can invest in, betting that the interest rates will rise in the next 5 years?

thanks

Moneyguy1 · 02-11-2004, 07:03 PM

Look into mutual funds. I use T.Rowe Price. They have an excellent selection from high to low risk, and some good bond funds. I figure they pay the fund managers bigbucks and they know more than I do about when to buy and when to sell. Also, they have no load on their funds. Think about joining the American Association of Individual Investors and attending their meetings. There is a branch in nearly every big City.

Bonds have been flying high because of the low interest rates, but if rates go up, the bond market may suffer. Be careful, read a lot, track some of the mutual funds for a while, then make up your mind.

on-ramp · 02-11-2004, 07:07 PM

thanks , but i need to know which mutual funds/stocks specifically are good for investing, if i believe that interest rates will be much higher in 5 years?

turbo6bar · 02-11-2004, 07:18 PM

What about individual blue chip stocks? My main gripe with mutual funds is the capital gains you pay each year. If you own individual stocks, you only pay capital gains when you sell.

on-ramp, your guess is as good as mine on picking mutual funds. I started with Janus in the late 80s. They did well until the past few years, and boy they have sucked really bad. T.Rowe Price International Stock seems to do decent (probably a conservative fund).

What are you trying to accomplish, besides make a ton of money? Mutual fund families will generally have a groups of funds tailored to different goals. You can go from ultra-aggressive to ultra-conservative.
Jürgen

Moneyguy1 · 02-11-2004, 07:24 PM

Investing is an individual decision. You are asking a question that no consultant in his or her right mind would answer without first knowing something about you. What is your tolerance for risk? Primary question. Unless I know where you are on the risk scale, I would make no recommendations.
I do not mean this as criticism, because for years this was my stock and trade, a financial advisor. Each individual, ultimately, has to assess what his or her goals are. No one can do the homework for you.

The following is a generality. Most younger adults have a higher tolerance for risk because their timetable is long. Older investors do not wish to gamble as much. Because of this, most investors have a mix of investments. Risk takers would have a higher percentage of small caps and mid cap companies, and some money in bonds and other money type investments. Older folks would be heavier on money market and bonds, but those with a bit of adventure would still hold a minor position in higher risk investments. Some people, regardless of age, prefer to put their money in a mattress, afraid of any type of risk.

So you see, I cannot answer your question without knowing a LOT more about you. Any advisor, whether it be Edward Jones, Schwab, or others will tell you the same.

Decolliber · 02-11-2004, 07:26 PM

Assuming interest rates correlate positively with the rate of inflation, you want to be in stocks whose underlying assets rise with (or even faster than) the rate of inflation. Historically, I think these have been business firms whose assets are "real" rather than financial (e.g., firms in primary products, such as agriculture, mining, and intermediate products such as steel, plastics, etc., rather than banking or other service industries). Manufacturing industries may or may not do well, depending on how inflation affects demand. In recent decades property has done well during inflation, even though high interest rates may raise the real cost of borrowing and hence hold down prices. The price of gold (and gold mining stocks) usually goes up rapidly during inflationary times, as some people lose confidence in currency. If you have an adjustable rate mortgage, pay it off quickly!
If you go to the Bureau of Labor Statistics web page you can get inflation data back to about 1900, and then look at, say, Value Line books (your local library) to see which stocks did best during inflationary periods.

LeeH · 02-11-2004, 08:24 PM

Where's the best place for cash right now? Anything better than 1% APR?

s_wilwerding · s_wilwerding's Garage

Quote:

Originally posted by LeeH
Where's the best place for cash right now? Anything better than 1% APR?

I have a savings account with Ing Direct that pays 2%. Not great, but pretty good for cash. You setup a link to your bank account so that you can easily move money to Ing or bring money back down to your bank account.

Ing Direct