The United States (U.S.) Federal Reserve had signalled a few days ago that there would be one more interest rate hike before the year ends, and that the rates would be held steady for a longer time.
The latter point above would have severe downstream repercussions for the markets and economies. Optimistic predictions and estimates of a drop in interest rates in at least the first half of 2024 had evaporated, and with such high numbers, leverage itself had turned to the other edge of the sword and cut into companies and organisations so used to having cheap loans.
This meant companies and real estate investment trusts (REITs) with high gearing, lower fixed rate loans, shorter debt maturity profiles and/or poor cash flow would be in for a ride in trying to navigate these high-rates waters. This is why in your fundamental analysis, it is important to select healthy companies and REITs for your portfolio.
On the other hand, cash and short-term treasuries are experiencing high yields. With Singapore’s interest rates somewhat correlated with the U.S. side, the past year or so had seen the popularity of erstwhile boring treasury bills (T-Bills), Singapore Savings Bonds (SSBs) and banks’ fixed deposits.
We are entering into relatively new stage of our investing life. Never had we seen a sharp rise of inflation and interest rates within a short time, and the last time this happened was in the last century’s 70s and 80s. For those whose investment portfolios were formed after the 2008/2009 financial crisis, like myself, this is unexplored territory. Yet, if your investment journey is a quarter/third/half way, you still have a long runway ahead of you, and definitely it will be full of events, good and bad.
However, if you do the following two things, your investment journey would be less daunting and you are better prepared for the things to come.
The first is to stay diversified; it has been demonstrated in the past that different asset classes have different correlations with one another in different market and economic situations. Coupled with the act of rebalancing, your investment portfolio could at least withstand the storms with lesser detriment while enjoying some fruits during fine weather.
The second is to remain calm in good times and bad. Do not get overhyped when every day is a Sunday and gloomy when every day is a Monday. Follow through your tested investment philosophy and style methodically, which in this way the element of emotion is reduced.
Remember, we are in for the long haul, so keep calm and stay invested.