In this guide we will talk about how increases or changes in interest rates affect investments . Also in relation to investments, we advise you to know the difference between economic investments and financial investments.
How increases or changes in interest rates affect investments
How increases or changes in interest rates affect investments
Investors don't like interest, since they definitely do affect the portfolio many times . In any case, let's analyze what an increase in interest rates does for both small or new traders, and for those interested in the stock market. In turn, we invite you to know what the theory of loanable funds and the real interest rate consists of.
Interest for the new trader
If you started a business just before an interest rate hike, you definitely could be affected in the long term . In countries with relatively stable economies, interest rate increases do not immediately affect. In any case, these measurements will be displayed over time.
On the part of the trader, an increase in the interest rate (depending on its legal nature) will involve paying more to the treasury (or to the competent body of the nation). Clearly this involves extra expense for investors or traders, so action is needed.
Usually, an increase in the price of the product might seem like a solution, but this has negative repercussions in the long run. One of them is that there is possibility of losing customers , because nobody likes an increase in the price of the products they consume.
On the other hand, if the rise in prices after an interest increase becomes a general trend, it could reach the point of inflation. In any case, in stable countries, there are regulations and certain controls based on prices. Beyond interest, inflation could certainly represent a major social problem.
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Interest in the stock market
In the case of the stock market, changes in the interest rate do not take effect immediately, at least not for the average user. In any case, the interest pays off more expensive any type of loan. This increase in overall value will sooner or later reach the average consumer and affect him more or less directly.
In the case of shares, the changes in interest rates they can lead buyers not to offer the expected figures. In other words, assuming you have stock in a specific company and want to sell them, a rise in interest rates usually decreases supply.
Conditions that affect the economy at a general level
A rise in interest rates usually has an economic impact, but there are other manifestations even more harmful . So let's analyze those aspects that can be destructive for the economy of a region or a country.
Inflation
In short, inflation is the imbalance caused from the increase in prices of most products. This results in lower purchasing power, in other words, the salaries are the same, but the products are more expensive.
Inflation is certainly one of the most serious economic problems and has led very well positioned nations to very considerable economic crises. For this reason, on a general level, inflation is one of the economic problems that can most affect an investment. In relation to this, we recommend that you learn what the relationship between the interest rate and inflation is.
Bad financial management
La general economic mismanagement, they are the causes of crises both in nations and in institutions. We refer to all those measures far from economic criteria.
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Many people point to statism as one of the causes of problems cheap. Of course, the causes are many, but inadequate management of a government or a company will affect all those who are under it, that is, the population or the workers.
On the other hand, if you want to know more about interest, we recommend that you know the difference between accrued interest and income interest.
