The biggest question facing investors today

All investors are at the mercy of interest rates. As interest rates go down, asset values go up, which has been a huge supporter of returns in recent years. But it works in reverse too. As we’ve seen recently, when rates go up, it can trigger volatility and asset price falls. Or to put it another way, as Charlie Jamieson from Jamieson Coote Bonds says; “interest rates are the virus that affects all assets.” So, with the economy firing back up, and with inflation and long-term interest rates beginning to rise, investors are understandably nervous.

In this week’s episode of The Rules of Investing podcast, I speak to Charlie about what’s happened in recent weeks, where rates could be headed, and why it matters so much. We also discuss how to make money from bonds - beyond just collecting a coupon, and the biggest risk facing markets today.

Time Stamps

• 2:10 – Charlie’s view on how COVID-19 differed from previous market crises in relation to fixed income
• 7:36 – How bonds work & their role within a portfolio
• 15:45 – The broader implications of a steepening yield curve
• 26:05 – How high can interest rates go?
• 28:27 – The ballooning of central bank balance sheets
• 33:38 – What do the returns of a bond portfolio look like during periods of increasing rates?
• 41:21 – Effects of interest rate rises on risk assets
• 44:33 – The million-dollar question: have rates bottomed?
• 47:54 – What are the most important economic and financial risks investors should be paying attention to?
• 49:10 – Charlie answers our 3 favourite questions

Reading recommendation

• Edwin Lefèvre - Reminiscences of a Stock Operator. Available on Amazon or Booktopia.

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