In this extract from episode 421 of the Money to the Masses podcast (recorded on 29th June 2023) I explore the impact of changes in the Bank of England base rate on investment markets, including equities, bonds, and commodities. I also provide insights on how to position a portfolio to benefit from these changes.
We discuss the latest piece of 80-20 Investor research (see link below) on how best to invest when interest rates are hiked, paused or cut.

Check out the full podcast episode 421 below:

Check out our article, “Investing throughout the interest rate cycle” –

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Please remember, with investing your capital is at risk and the value of investments can go down as well as up, so you may get back less than you invest.

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Episode 1 –

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Investing Throughout the Interest Rate Cycle: Strategies for Success

Interest rates play a crucial role in the overall financial market. They determine the cost of borrowing for businesses and individuals, influence consumer spending, and are closely monitored by investors worldwide. For this reason, understanding the interest rate cycle and positioning your investments accordingly is essential for long-term success.

The interest rate cycle is a series of ups and downs that occur over a period of time. It is mainly influenced by factors such as central bank policies, inflation rates, and economic growth. In general, interest rates are raised during times of economic expansion to curb inflation and lowered during economic downturns to stimulate growth. Understanding the different stages of the interest rate cycle can help investors make informed decisions and maximize returns.

During times of low-interest rates, typically seen in the early stages of an economic recovery, growth-oriented investments tend to perform well. Stocks, particularly in sectors such as technology and consumer discretionary, tend to outperform during these periods. Low borrowing costs also benefit businesses, as they can expand operations and invest in growth initiatives.

As interest rates continue to rise, the focus shifts towards more defensive and income-generating investments. Bonds, particularly government and high-quality corporate bonds, become more attractive as they offer higher yields. Dividend-paying stocks, utilities, and real estate investment trusts (REITs) are also appealing options for investors seeking stable income streams.

When interest rates reach their peak and begin to decline, the fixed-income investments previously mentioned will still provide a certain level of protection. As rates decrease, bond prices tend to rise, resulting in capital appreciation for bondholders. Dividend-paying stocks may also experience capital appreciation as investors seek higher returns in a low-rate environment.

While understanding the interest rate cycle and positioning investments accordingly is crucial, it is equally important to have a diversified portfolio that can weather various market conditions. Diversification across asset classes, sectors, and geographies can help reduce risk and enhance overall portfolio performance.

Timing the market based solely on interest rate movements is challenging and often unsuccessful. Professional investors consistently remind individuals that trying to predict interest rate movements accurately is nearly impossible. Instead, adopting a long-term investment strategy that considers the interest rate cycle along with other fundamental and technical indicators is a more prudent approach.

Investing throughout the interest rate cycle requires patience and a focus on long-term goals. Reacting to short-term interest rate movements can lead to emotional decision-making and potential losses. By staying disciplined, diversified, and focused on the big picture, investors can navigate the interest rate cycle successfully and achieve their financial objectives.