Fed rate cut, what does it mean?

[Pucky Freak]

Depending on who you listen to or what you read this could be a really good thing or a really bad sign (another 2008).

No one can predict the future. There will always be people who guess and are right, and there will always be people who guess and are wrong. This proves nothing, other than guessing sometimes yields the correct answer, and sometimes it does not.

When people say "the market is due for a correction", this is always true because at some point in the future, whether it is tomorrow or 10 years from now, there will be a modest correction. But to imply that the correction is definately "soon" as it next week, or next month, or within the year is complete and utter nonsense. All you get is occasional confirmation bias when the correction does happen sooner than later, and some dudes come out and say, "Hey, I told you so!"

How does a the FED cutting (or increasing) interest rates affect the average guy? Well count on millions of people getting greedy or panicking, and the markets having some short-term volatility. Best thing you can do is ignore all the chatter and keep plugging away at a sound investment strategy. Or, listen to the wizards and soothsayers who make a lot of money advising people on how to time the market and pull your money in or out of investments. Your pick.

 

[rmauch20]

This may be totally unrelated to all the craziness of the market and my Original question in this post.

We bought our home last year about this same time. After speaking with my bank yesterday we are refinancing the loan, knocking ten years off the term, saving over $70,000 by doing so, and obviously have it paid off sooner.
So whatever is going on I’m pretty happy about that.

 

[BraidenR]

Depends on your time horizon. I'm 46 and have at least another 2 decades of investing in front of me. Every time the market has a good dip, like today and yesterday, I buy more S&P 500 ETF (e.g., VOO). Sure, we could tank 20% next year, or be up 20% next year, either way I'm staying in, but if we tank I'm buying more. Long term, nothing really compares to solid equities for wealth building. Even if someone went all in just prior to the financial crisis and the ensuing crash, they would be up wildly today. Unless the world ends, this will continue and you can only bet on the end of the world once. Just need to be able to bear the pain for a bit and keep a level head when the bottom falls out during a downturn.

I need you tell my wife this directly, she doesn't listen to me to well. Each time she looks at her investments after a bad week she wants to pull out. She can not understand why I want to add put more into the game. We never do take any out, I have been able to convince her to keep everything in. We have a few years ahead of us, so our money should grow substantially. I we are both 27, so we have a solid 35+ years to go.

 

[BrentD]

I need you tell my wife this directly, she doesn't listen to me to well. Each time she looks at her investments after a bad week she wants to pull out. She can not understand why I want to add put more into the game. We never do take any out, I have been able to convince her to keep everything in. We have a few years ahead of us, so our money should grow substantially. I we are both 27, so we have a solid 35+ years to go.

BraidenR,
Buy her a book. "A Random Walk Down Wall Street" is not a bad start. Easy to read and understand, conceptually, it will make what stealthy_bowman just said, quite clear.

 

[brymoore]

To average guy rate cuts mean little to nothing... it makes money cheaper to burrow and now is about best time in history to mortage a house! Tecnically the fed has a dual mandate to achieve full unemplyment and a inflationary rate of around 2%. They cant get inflationary rate portion right becuase way economy has been running and external factors. External factors: tariffs, shrinking gdp, brexit, longest bull market just to name a few but biggest is foreign goverments have lowered there rates to boost their own economies so low that they are negative which is crazy. In germany you buy a 10 year bond right now for $100 and in 10 years get $95 back, how does that make sense?... US financial markets are basically only place in world with positive returns. these pressures are strengthing the us dollar and causing unintended side effects. The fed has reduced rate, many would argue not enough as insurance to help prevent financial perils like some of these foriegn nations and to give a slight boost to the us economy as we get long into this bull market in attempt to avoid a bear market and recession. Hope i explained it clearly and didnt leave out any real factors but you get point

My bank is forecasting negative interest rates in the US as a possibility.

 

[MThuntr]

My bank is forecasting negative interest rates in the US as a possibility.

Hmm that means banks charging to hold money and paying you to take loans...right?

Good thing I have no money and need to buy a house...bring on the debt

 

[brymoore]

Hmm that means banks charging to hold money and paying you to take loans...right?

Good thing I have no money and need to buy a house...bring on the debt

It could mean several things. Rates should be lower but not potentially negative for customers. The banks cost of funds could be negative but the added spread over cof could result in a low positive rate. If cof are really low, the corresponding rate could be negative. Denmark currently has 10 years mortgages at -0.50%. The resulting interest due would reduce the mortgage balance monthly, not create a payment stream for borrowers.

 

[MThuntr]

It could mean several things. Rates should be lower but not potentially negative for customers. The banks cost of funds could be negative but the added spread over cof could result in a low positive rate. If cof are really low, the corresponding rate could be negative. Denmark currently has 10 years mortgages at -0.50%. The resulting interest due would reduce the mortgage balance monthly, not create a payment stream for borrowers.

gotcha...I'd be game for even 0 because I'll want to buy some permanent housing about the time the market also takes a dip

 

[AvidIndoorsman]

Meanwhile student loan rates are above 6%... some as high as 9%.

 

[noharleyyet]

Meanwhile student predatory loan rates are above 6%... some as high as 9%.

 

[AvidIndoorsman]

Good catch.

 

[brymoore]

Meanwhile student loan rates are above 6%... some as high as 9%.

Student loans are from the Sallie Mae who reports variable rates starting at 3.25% and fixed at 4.74%. Student loans are high risk and should have a higher interest rate.

 

[RobG]

For me it means I'll likely refi to a 20 or 15 yr.

How'd that go? I looked into a refi for an investment property and it was more than 1 percentage point higher than when I refinanced investment properties in 2013 and 2016. Maybe the loaners are expecting another real estate crash.

 

[RobG]

Student loans are from the Sallie Mae who reports variable rates starting at 3.25% and fixed at 4.74%. Student loans are high risk and should have a higher interest rate.

Since my daughter just left for college I'm getting a lot of ads from what appear to be private lenders. IIRC the rates were higher than that.

 

[AvidIndoorsman]

Student loans are from the Sallie Mae who reports variable rates starting at 3.25% and fixed at 4.74%. Student loans are high risk and should have a higher interest rate.

BS

Student loans are extremely low risk, compared to any other major lending. It's impossible to discharge them even with bankruptcy, the collateral in effect is the person. Some loans can even be collected or pursued after the death of the student. This is far beyond the scope of say a home or auto loan.

Federal direct loans are currently 4.53% for undergrad, 6.08% for graduate, and 7.08% for PLUS loans. These are the current rates, if you undergrad rates for most millennial were around 6.8%.

Further these are the federal rates, those loans are maxed at an amount that will not cover tuition for most 4 year universities and practically no private universities.

Private loans have much worse terms and are for much higher rates, I've seen as high as 12%.

 

[BraidenR]

BraidenR,
Buy her a book. "A Random Walk Down Wall Street" is not a bad start. Easy to read and understand, conceptually, it will make what stealthy_bowman just said, quite clear.

I will take a look at it. She is not as Interested in learning about financial issues as I am. Maybe I can convince her, or it can at least give me a few new ways to explain it.

 

[RobG]

I will take a look at it. She is not as Interested in learning about financial issues as I am. Maybe I can convince her, or it can at least give me a few new ways to explain it.

I'll second that book - it's a classic. For me the aha moment was the explanation of the asset classes we have available. Once you know that, then understanding investing becomes much easier. I see he updated it in 2016 so I'm sure he has some choice words on the 2008 crash.

 

[Europe]

No one can predict the future. There will always be people who guess and are right, and there will always be people who guess and are wrong. This proves nothing, other than guessing sometimes yields the correct answer, and sometimes it does not.

When people say "the market is due for a correction", this is always true because at some point in the future, whether it is tomorrow or 10 years from now, there will be a modest correction. But to imply that the correction is definately "soon" as it next week, or next month, or within the year is complete and utter nonsense. All you get is occasional confirmation bias when the correction does happen sooner than later, and some dudes come out and say, "Hey, I told you so!"

How does a the FED cutting (or increasing) interest rates affect the average guy? Well count on millions of people getting greedy or panicking, and the markets having some short-term volatility. Best thing you can do is ignore all the chatter and keep plugging away at a sound investment strategy. Or, listen to the wizards and soothsayers who make a lot of money advising people on how to time the market and pull your money in or out of investments. Your pick.

Elkfever2, I agree

I do however go against conventional wisdom for someone my age. When I reached 70 everybody told me to invest more conservatively, they ramped up the volume at 75 and again when I reached 80 and are still trying to change my investing habits because of age. But I have stayed consistent for a long time by investing in stocks, bonds, gold/silver, real estate, etc the only thing I quit doing was selling puts a few years back. But if we have a correction, a serious one, then I will do that again also.

 

[brymoore]

BS

Student loans are extremely low risk, compared to any other major lending. It's impossible to discharge them even with bankruptcy, the collateral in effect is the person. Some loans can even be collected or pursued after the death of the student. This is far beyond the scope of say a home or auto loan.

Federal direct loans are currently 4.53% for undergrad, 6.08% for graduate, and 7.08% for PLUS loans. These are the current rates, if you undergrad rates for most millennial were around 6.8%.

Further these are the federal rates, those loans are maxed at an amount that will not cover tuition for most 4 year universities and practically no private universities.

Private loans have much worse terms and are for much higher rates, I've seen as high as 12%.

Sure they are. That’s why every major bank got out of student loans when the government guarantees went away.

Who wouldn’t want to lend money to an 18-24 year old unsecured?

 

[AvidIndoorsman]

Sure they are. That’s why every major bank got out of student loans when the government guarantees went away.

Who wouldn’t want to lend money to an 18-24 year old unsecured?

Huh funny, Wells Fargo must be small potatoes.

Apparently, no one that’s why Americans have 1.5 trillion in student loans debt... hm wait that doesn’t check out.

Also ever heard of a bank garnishing someone’s paycheck or social security because of a auto loan or mortgage... cause yeah that happens all the time on student loans.