Financial planners explain what to do (and what not to do) in a falling-rate environment. Here are their tips for protecting portfolios for the long term.
Central bank interest rate cuts are impacting savings, stock and bond markets. However, investors are often confused about what to do.
At a time when the European Central Bank and the Fed have started to cut interest rates, while other central banks outside the euro area are not following this trend (such as the Bank of England and Norges Bank), it can be difficult to properly assess the impact on your investments, with the risk of reacting emotionally to news and market movements, without considering your long-term strategies.
This attitude risks jeopardizing your returns and capital growth, according to financial planners.
Here are 3 things investors should (and shouldn’t) do to protect their investments during a period of falling rates.
3 Things to Do After a Rate Cut
After a rate cut, experts suggest adopting some strategies to optimize and protect your investments. Here are three recommended actions to make the most of this situation:
1. Review your investment strategy
The first suggestion from experts is to check whether your investment strategy is still aligned with your long-term goals and reflects your risk tolerance. Lower rates can stimulate the economy, as they make loans more affordable for businesses and consumers. However, reviewing your strategy based on short-term market forecasts or central bank decisions alone may not be the right solution.
2. Diversify to reduce risk exposure
Financial planners also emphasize the importance of diversifying your portfolio properly. Diversification not only reduces your risk exposure but also allows you to benefit from different market performances in the long term. A good idea is to divide your portfolio into various sectors, also considering small caps. The growth of these companies is more linked to financing plans and lower rates reduce the cost of debt.
3. Move savings from savings accounts to more profitable investments
During the upward cycle of interest rates, the liquidity deposited in term accounts was remunerated with attractive rates. With lower rates, the yields of savings accounts are also gradually decreasing. According to experts, this could be the ideal time to move cash to more profitable investments such as the bond sector.
What not to do after the rate cut
Although the interest rate cut can generate worries and uncertainties, it is essential to avoid emotional reactions that could compromise the future results of your portfolio. According to experts, there is a common mistake to avoid in order to protect your investments:
Selling in a panic
With rate cuts, financial markets are more subject to volatility. However, when following a long-term investment strategy, you should not be distracted by short-term movements: these types of portfolios are generally designed to withstand these fluctuations. Impulsive decisions, such as selling during a market downturn, risk compromising the growth potential of the portfolio, causing you to miss the recovery opportunities that follow.
|DISCLAIMER
The information and considerations contained in this article should not be used as the sole or main support for making investment decisions. The reader retains full freedom in his or her investment choices and full responsibility in making them, since only he or she knows his or her risk appetite and time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public to save.|
Original article published on Money.it Italy 2024-09-21 14:04:00. Original title: Investimenti, 3 cose da fare (e 1 da non fare) dopo il taglio dei tassi
