What type of investor are you?
Whether you’re new to the game or you’re a savvy veteran with an extensive portfolio, there’s one basic principle that we all look for with investments: high interest rates.
In most cases, higher interest rates means higher returns. Seems like a pretty simple formula, right? When you know that interest rates are bound to change, you may be more inclined to wait for that to happen before investing in a product. However, this could actually be costing you money.
Many investors that we talk to mention that they love our Fixed Income Fund strategy — which provides stable, monthly income with fixed interest rates that leave many other annuities in the dust. But these investors also mention that while they are interested in our strategy, they’d still like to wait to invest until interest rates rise.
The reason behind this is that they don’t want to be locked into today’s interest rates when they know a rise could be on the horizon, because (as we said above) higher rates equal higher returns.
This “wait and see” philosophy is actually a very common misconception within the world of investing, and we would like to take some time to expel that myth. Keep reading to learn more and contact Tactical Wealth if you’re ready to invest and make more money now.
Understanding Market Interest Rates
Interest rates move, and will continue to move, significantly over time. According to the U.S. Treasury 3-year maturity rates, dating back to 1962 they have been as low as 0.3 percent and as high as 16.45 percent.
That’s a whole lot of wiggle room. The current rates are considered to be fairly low, with a three-year maturity rate hovering around 2.42 percent as of February 2018. That means experts and trends predict that an uptick is on the horizon.
Investors all to often make the mistake of thinking that if they wait to invest once interest rates rise, that will in-turn increase their monthly payments, which will in-turn mean more income.
But does it really? Let’s consider a hypothetical investor who chooses to invest now in the Fixed Income Fund compared to an investor who chooses a deferred “wait and see” strategy. In this scenario, we’ll assume that interest rates will rise 0.5 percent, from 2.42 percent to 2.92 percent after one year and from 2.92 percent to 3.42 percent at the second maturity.
Investor No. 1
- The first investor chooses not to wait, but rather to put his money into the Fixed Income Fund at its current three-year, 2.42 percent maturity rate.
Investor No. 1 ultimately earns $2,420 each year throughout the first three-year maturity — a total of $7,260 over three years.
- The investor then invests in another three-year maturity, this time at the increased rate of 2.92 percent. They do so again upon maturation in three years, this time earning an interest rate of 3.42 percent.
- After 10 years, investor No. 1 earns $29,700 from interest from the Fixed Income Fund.
Investor No. 2
- Investor No. 2, on the other hand, chooses to wait for the interest rates to rise in one year. They get in when rates are at 2.92 percent for a three-year maturity, ultimately accumulating $8,760 off their first investment. Seems like they’re ahead of the game, right?
- This investor’s next two investments then tend to level out, earning 3.42 percent on the following three-year maturities. All told, Investor No. 2 earns $29,280 after 10 years — proving that waiting to invest actually costed them valuable returns.
Don’t Wait — Invest Today
As you see, there’s no point in waiting for interest rates to go up when you could be earning stable, consistent monthly income today. Contact Tactical Wealth to learn more about how the Fixed Income Fund compares and get your free report today.