What Just Happened with Interest Rates?
If you've been watching the news, you've probably heard that the Federal Reserve (the "Fed") just raised interest rates again. As a new investor, you might be wondering what this actually means for your stocks.
Basically, when the Fed raises rates, it becomes more expensive for companies to borrow money. This affects different types of stocks in different ways.
How Different Stocks Are Affected
Growth Stocks (Like Tech Companies): These are hurting right now. Companies like Peloton ($PTON) that need to borrow money to grow are finding it more expensive to do so. That's why many tech stocks are down this year.
Dividend Stocks (Like Utilities and Pipelines): These are doing better. A company like Enbridge ($ENB), which operates oil pipelines and pays a 7.2% dividend, becomes more attractive when savings accounts are only paying about 5%.
Gold and Commodities: These often do well when people are worried about inflation. Franco-Nevada ($FNV), which is involved in gold mining, has been performing well as gold prices have risen.
What Should You Do Now?
If your portfolio has a lot of tech stocks, you might want to:
- Consider reducing your exposure a bit
- Move some money into more stable dividend payers
- Wait for better prices before adding more growth stocks
If you're holding mostly cash:
- You might start by investing in some of these more stable dividend payers
- Consider adding a little at a time rather than all at once
If you're retired or need income:
- Focus on high-quality dividend stocks
- Be careful with risky investments right now
- Maybe add some gold exposure as protection
