Rising interest rates and a market correction
Our interest rates are rising and our share markets are falling. Why this happening and what is are your options if you are affected?
Why are our interest rates rising?
The Reserve Bank of Australia (RBA) is raising interest
rates, however this is not as a response to what is happening
off shore as many people believe. The RBA is raising interest
rates in an effort
to curb spending and to slow our strong economy.
However, Australian lenders are also raising their interest
rates, above and beyond the increases of the RBA. This
is because Australian lenders are quite likely to have
borrowed funds from a global lender. Since many global
lenders have been rattled by the US sub-prime crisis, they
are increasing their interest rates to offset the perceived
risk and in turn, so must Australian lenders.
Why are the markets falling?
Firstly, it is important to note that share markets have
had a strong run and many stocks were expensive. We all know
that markets fluctuate and we are currently experiencing
that market correction. What has triggered it? When the US
looks likely to be heading towards a recession, we often
see a knee-jerk reaction by Australian investors to sell
either a portion or all of their share holdings. In turn,
this drives our share market downwards as we are currently
experiencing.
Where to from here?
Fortunately, Australia is not likely to follow in the footsteps
of the US, however, in relation to both the interest rates
and the current market correction, you need to remember a
few key points:
| 1. | Remember that markets will fluctuate and always speak with your Count Adviser before making any decision that will change your investment strategy. |
| 2. | ‘Diversifying’ your investments across
different asset classes means that when one asset class is doing poorly, it can be balanced by another area that is performing better. So rather than expose your portfolio to extreme ups and downs, diversifying your investments will reduce the volatility. |
| 3. | Ensure that you have a good budget and savings plan in place so that you have money available for a ‘rainy day’. This will offer peace of mind that you will be able to manage any additional expenses. Your Count Adviser will work with you to devise the best budget and savings strategy for you. |
| 4. | It is always important to ensure that you have the right home loan for you. By regularly reviewing your loans with your Count Adviser, you can rest assured in the knowledge that you are not paying more than you have to, and you have a mortgage product that suits your needs. |
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As at
12 May, 2008 |
