Low interest rates are an especially big deal for investors because they essentially change the game when it comes to making money and protecting wealth. The choices you make with your money can be influenced by the interest rates set by central banks like the Federal Reserve.
When these interest rates are really low (like they have been for much of the past decade), it opens up some unique investment opportunities. Of course, this also presents some challenges.
We’ll be talking about how low interest rates impact investment opportunities in this article, so stick around.
What Are Low Interest Rates?
To put it simply, interest rates are the cost of borrowing money (or the return you get for saving it). When interest rates are low, it’s cheaper to borrow money. Naturally, this encourages business owners (and people in general) to take out loans.
When interest rates increase, holding assets like gold and silver doesn’t seem as worthwhile because they don’t generate any interest. As a result, fewer people buy precious metals, which can cause fluctuations in metal prices.
When interest rates are low, however, investors aren’t missing out on much by holding gold or silver since other investments aren’t offering much return either. Now, let’s take a closer look at how interest rates could potentially impact investment opportunities below.
Real Estate
Low interest rates also mean cheaper mortgages. People might choose to invest in rental properties or commercial buildings because they expect that their value will increase as the economy grows.
Stocks
Investors will often turn to the stock market when interest rates are low. Companies can borrow money more cheaply to grow their businesses, which can make their stocks more valuable over time. That said, the stock market can be volatile (i.e. the value of your investments can go up and down over time).
What About Gold and Silver?
Gold and silver are traditionally seen as “safe havens.” When inflation is a concern, for example, investors might buy gold and silver to protect their wealth. These metals tend to do quite well in times of crisis or when interest rates are low.
When interest rates are low, the opportunity cost of holding gold and silver decreases. Opportunity cost is the idea of missing out on something because you chose another option.
Investors often use gold and silver as a hedge (e.g. to balance risk). If you have some investments in stocks or real estate, adding gold or silver could reduce your risk.
In other words, if one part of your portfolio loses value, the gold or silver might increase, which could help balance things out.
Conclusion
As you can see, low interest rates impact investment opportunities by pushing investors away from savings accounts and towards real estate, stocks, and safe-haven assets (like gold and silver).
Now that you have a better understanding of how these financial shifts work, you’ll be able to better protect your wealth and even make it grow over time.