Impending Economic Recession and Falling Interest Rates—How Can You Maintain High Returns in Times of Low Interest Rates
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Over the past few months, interest rates have been falling at unprecedented rates—on a global scale. Why? In a bid to pump money back into the system, financial institutions and central banks have intentionally lowered rates to avoid the threat of a global economic recession.
With the Brexit deal in tatters, the American trade war unhinged, political conflicts and protests against capitalism, corruption and big money corporations on the rise, it’s no surprise that investors and financial analysts are worried about a system that’s coming apart at the seams.
Interest Rates and Investments
When an economy is failing low interest rates are supposed to promote a more advantageous exchange of money against consumer goods, services, loans, and investment opportunities. Increased spending means an increase in borrowing, which spurs investments and, in turn, the economy.
The US saw a record drop in interest rates recently, with the 10-year treasury dropping as low as 1.4%, despite starting at roughly 2.7%. On a similar note, mortgage rates have been on the decline, so this is the right time to diversify investments and refinance your mortgage.
Maintaining Returns with Falling Interest
The real question isn’t about investment portfolios, but rather about profitable returns. How do you boost returns from investments during a dying economy?
A good place to start is by balancing your investment profile with bonds, stocks, cash, and commodities. Investing in just stocks—even if you’re getting high returns—can result in losses, especially if the market takes time to recover.
If you’re also looking to protect your purchasing power during inflation, diversifying investments and investing in precious metals is the ideal way to ensure that.
Investing in Metals with Money Supply
There are multiple ways to go about investing in precious metals. Equities, exchange traded funds (ETFs), and physical ownerships are just a few of many. If you need to decide on picking the right category of investment, understand tax-efficient investing along with the returns.
Stocks and equities offer low tax rates in the long-term, but in the short-term (let’s say a year), you’ll be legally bound to the regular capital gains tax rate. However, with equities you don’t have to pay any taxes unless you sell and make profit.
Bonds, on the other hand, have more immediate tax concerns, especially if you’re receiving income bi-annually. Corporate bonds have even greater tax consequences, with the investor paying taxes on even the profits from debt securities.
Now, with an increase in the money supply, many investors are moving away from bonds and equities and toward ownership of physical metals, particularly gold.
With gold prices seeing some of the highest rates this year, analysts believe that holding gold is the ideal stance—and the dollar getting weaker will only help this further.
With even the Central Bank increasing their gold reserves, it’s the perfect opportunity for you to prepare yourself for a recession, whether it happens or not!