Lower Interest Rates Could Affect Your Financial Future

In September, The Federal Reserve (or “the Fed” for short) lowered interest rates. This change could affect your investments and retirement planning.

Why is this significant? Think of interest rates as the cost of borrowing money. When rates are high, it costs more to borrow. When they’re low, it’s cheaper. The Fed sets a key rate that influences all other economic rates.

How Lower Rates Affect Your Investments

When interest rates go down, it can shake things up in the investing world. Here’s what you might see:

1. Stocks might go up: Companies can borrow money more cheaply, which could help them grow. This often raises stock prices.
2. Bonds might pay less: If you own or invest in bond funds, you might earn less interest. But the value of bonds you already own could go up.
3. Savings accounts pay less: Your savings account might grow slower. Banks don’t need to offer high rates to attract savers.
4. Real estate could get more expensive: Lower rates make mortgages cheaper, so more people might buy homes, increasing house prices.
5. Utility investments might change: Utility companies, like those providing electricity or water, could also be affected. Here’s how:
   • These companies often borrow a lot of money to build and maintain their systems.
   • When rates are low, they can borrow more cheaply. This can boost their profits.
   • However, utility stocks are sometimes seen as alternatives to bonds. When rates drop, some investors might sell utility stocks to buy riskier investments.
   • So, utility stock prices might go up because of cheaper borrowing, but they might also go down if investors look for higher returns elsewhere.

What This Means for Your Retirement Plans

Thinking about your golden years? Lower rates can affect your retirement planning, too:

1. You might need to save more: If your investments earn less, you may need to put away more money to reach your goals.
2. Consider diversifying: Don’t put all your eggs in one basket. Mix up your investments to spread out risk.
3. Think about stocks: With lower rates, stocks might be more attractive for long-term growth. But remember, they can be risky, too.
4. Watch out for inflation: Low rates can sometimes lead to higher inflation, so your money might not buy as much.

Smart Moves to Make Now

So, what can you do to stay on track? Here are some ideas:

1. Review your plan: Work with an experienced investment counselor. Take a fresh look at your investments and retirement goals. Do they still make sense with lower rates?
2. Keep saving: Even if rates are low, saving is still important. Every bit helps!
3. Look for better deals: Shop for savings accounts or CDs offering better rates.
4. Consider real estate: Lower rates might make now a good time to buy a home.
5. Think about utilities: Consider utility stocks. They might offer steady dividends, which could be nice when other investments pay less.
6. Stay flexible: The economy can change quickly. Be ready to adjust your plans if needed.

“This is the time to reevaluate your investments and retirement planning,” says Glenn Werner, Vice President Investments, David Lerner Associates. “Talk to your investment counselor before making any moves.”

The Big Picture

Remember, interest rates are just one piece of the puzzle. The economy has lots of moving parts. While lower rates can change things up, they’re not the only thing that matters for your money.

The most important thing is to stay informed and think long-term. Keep saving, keep learning, and don’t make big changes without considering all the information and getting expert advice.

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Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.