Why Interest Rates Don't Matter (Until They Do)
The thing about interest rates is that everyone talks about them, but few people understand what they actually mean for their specific situation.
Fed raises rates? Headlines everywhere. Fed cuts rates? More headlines. Fed holds steady? Believe it or not, headlines.
But what does any of this actually mean for you?
The Conventional Wisdom
Most people think the relationship is simple:
- Rates go up → stocks go down
- Rates go down → stocks go up
This is… sometimes true? But also frequently wrong.
Markets are forward-looking. By the time the Fed actually changes rates, the market has usually already priced in the change weeks or months earlier.
What Actually Matters
For most individual investors, interest rates affect three things:
1. Your savings rate. Higher rates mean better returns on cash and short-term bonds. If you’re holding significant cash, you benefit.
2. Your borrowing costs. Higher rates mean more expensive mortgages, car loans, and credit card debt. If you’re borrowing, you pay more.
3. Bond prices. This is the tricky one. When rates rise, existing bond prices fall. But then new bonds pay higher yields. Over time, it roughly evens out.
What Doesn’t Matter
For a long-term, diversified investor? Day-to-day Fed decisions are mostly noise.
Your portfolio should be built to weather any interest rate environment. If a quarter-point move either direction fundamentally changes your plan, something is wrong with your plan.
The Fjaka Approach
When clients ask what we’re doing about interest rates, the honest answer is usually “nothing different.”
Our portfolios include a mix of stocks and bonds calibrated to each client’s goals and risk tolerance. We don’t try to predict rates. We build for resilience instead.
Is that less exciting than making bold calls? Absolutely.
Is it more likely to work? Also absolutely.