fbpx

INSIGHTS WITH EVALESCO

How do share markets perform when interest rates rise?
by Jeff Thurecht | 7 March 2022

TOPICS DISCUSSED

Are interest rate increases good or bad?
Performance of the S&P500 since the 1970s

Interest rates in Australia and the US will, almost certainly, go up over the next couple of years.  

Are interest rates increases good or bad for share markets? 

The answer to this question seems obvious, right? They are a bad thing. Because the higher the interest rate, the greater the discount rate and the lower the present value of long duration assets like shares – all else being equal. 

But as we know all else is not equal. 

Using the United States (the world’s dominant economy and share market) as an example, the table below sets out the performance of the S&P500 during the 8 rate hike cycles since the 1970s. The biggest of these interest rate increases took place before 1984 when the Federal Reserve were raising rates to slow runaway inflation. That may be a parallel to today with US inflation currently at around 7%. 

During these periods the S&P500 generated an average total return of 23%. Which is pretty good.  

Central banks typically raise rates when the economy is firing and businesses are prospering and growing their earnings. Earnings drive share prices. So maybe we shouldn’t be surprised with those outcomes. 

We must acknowledge that rising interest rates aren’t the only thing that share markets are contending with right now. No-one knows what returns share markets will deliver during the upcoming rising interest rate cycle. However, history tells us that now is not the time to be sitting on the side-lines. 

Let’s hope that the Federal Reserve can effectively reduce inflation to their target rate of 2% without pushing the country into a recession. As a recession would give share markets something else to worry about. 

 *Thanks to our friends at Ophir Asset Management for preparing and sharing an analysis of this information. 

SHARE OUR INSIGHTS

Share on Facebook

Share on Email

Share on Linkedin

Jeff Thurecht
DIRECTOR & PERSONAL FINANCIAL ADVISER
jeff@evalesco.com.au | 0418 225 467 | 02 9232 6800

NEWSLETTER

Sign up to get the latest insights with our newsletter delivered straight to your inbox

Slide
“How will I measure the value or success of receiving financial advice?”

We believe the true value of financial advice isn’t found in dollars and cents (although this is important too!) but in the peace of mind a financial plan can provide. It’s knowing where you want to go and how to get there, with a dedicated team behind you every step of the way.

Slide
“How do I know Evalesco is the right fit for me?”

We know the impact of good holistic financial advice can make and we have the life experience, technical capability and quality support team that can make that difference for you. We’ve empowered over 1000 families through the delivery of great financial advice, to be healthy, wealthy and happy.

Slide
“How do I know how much money I will need to retire?”

The amount of super you’ll need when you retire depends on your big costs in retirement and the lifestyle you want. The Associate of Superannuation Funds of Australia (ASFA) estimates for a single $44,224 a year and for couples $62,562 a year is how much you may need. This is only an indicator and our advisers assess everyone’s individual circumstances.

Slide
“Why should I pay for financial advice?”

The fees we charge for financial advice is only a fraction of the value we derive for our clients, meaning our clients are always better off after seeing us. Rarely do we encounter a new client invested appropriately for their needs, with adequate risk protection, structuring and estate planning provisions in place. Even small tweaks to a financial plan over a long period of time can result in drastically better outcomes for our clients which eclipses the fees of the financial advice. Additionally, you can opt-out of an ongoing fee arrangement at any time.

Slide
“How do you charge for your services?”

In our discovery meeting with you our advisers discuss the initial advice fee and the ongoing fees associated with our services.

Slide
“What is the process for getting our own personal financial plan?”

After our initial phone call to discuss why you are seeking a financial adviser, we arrange a discovery meeting that outlines what is important to you, your current position, our areas of advice, our approach. We then present a Statement of Advice (SoA) to discuss your goals and our recommendations and go through the steps of how to proceed to the implementation stage. After signing the SoA, we discuss your questions, get you to sign the authority to proceed and complete any application forms before implementing the recommendations detailed in the SoA.

Slide
“Should I pay more off my mortgage or put more money into super?”

One thing to consider is the interest rate on your home loan in comparison to the rate of return on your super fund. Before making a decision, it’s also important to weigh up your stage in life, particularly your age and your appetite for risk. Whatever strategy you choose you’ll need to regularly review your options if you’re making regular voluntary super contributions or extra mortgage repayments. As bank interest rates move and markets fluctuate, the strategy you choose today may be different from the one that is right for you in the future

previous arrow
next arrow

Evalesco Financial Services Level 17, 20 Bond Street Sydney NSW 2000
Phone: (02) 9232 6800

The information provided on and made available through this website does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Evalesco Financial Services do not warrant the accuracy, completeness or currency of the information provided on and made available through this website. Past performance of any product discussed on this website is not indicative of future performance. Copyright © 2019 Evalesco Financial Services. All rights reserved

Evalesco Financial Services Pty Ltd is a Corporate Authorised Representative (325313) of Australian Advice Network Pty Ltd.

ABN: 13 602 917 297 AFSL: 472901