Regular readers of this blog might have me pegged as a serial pessimist. When it comes to the big-picture economic outlook, I’ve been sounding the alarm for some time now. I simply feel that there are too many shaking and unsustainable pillars propping up the markets and the economy right now, and I have a difficult time seeing how there won’t be a correction (probably a painful one) in the not-too-distant future.
For all of my “doom and gloom”, however, I think I owe you some good news once in a while—and so here it is: interest rates are finally starting to rise. In a recent post about taking control of your retirement, I made a passing mention about this, and it’s definitely worth reiterating. And while one ray of sunshine peeking through the storm clouds isn’t necessarily a game-changer, it’s a noteworthy and welcome development, and it should have an impact on your retirement savings and investment strategies.
Generally speaking, higher interest rates are good news for savers, and should encourage folks to put a little more money away. If you’re on the fixed income side, keep things fairly short term, as we’ve seen some remarkable moves on the 10 year treasury recently. When it comes to equities, watch rates like a hawk: we have seen some precipitous drops lately, and, if interest rates continue to move, we’ll see more volatility ahead.
The only other thing to watch out for is this: while rate boosts are a net positive for people who are ready to save, it may have an overall negative impact on the broader economy. Given the fragile state of our economy right now, those ripples could be more impactful and far-reaching than usual, and should be monitored carefully.