It is very common to hear about the rise or fall of interest rates by central banks in the media. In fact, they are usually common on the covers of the main financial media. However, not everyone understands the implications of these movements for the common citizen and, in particular, for investors.
In this article I will briefly explain what interest rates are, what they are for and the consequences of rates at historic lows for citizens and investors.
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- bubble in sovereign fixed income.
Fewer investment opportunities
What happens when the price of almost all types of financial assets increases across the board?
Exact. Investors have fewer investment opportunities that offer us a return that outweighs their risk.
This exceptional situation makes the work of savers complicated and requires greater care in the selection of our investments.
Does this mean that there are currently no good investment opportunities?
However, it is important to exercise extreme caution, as Mister Market he's not making it easy for them.
In particular, I would be very careful especially with heavily indebted companies and would also try to avoid long-term fixed income.
How long will the cheap money policy last?
It is difficult to know. At least for me.
However, thinking that this situation will last forever can be a big mistake.
Therefore, it is important to be prepared with a robust portfolio that will not suffer if interest rates return to more normal levels from a historical point of view.
As they say Warren Buffett:
"Only when the tide goes out do you know who was swimming naked"