If Interest Rates Are Cut, What Rises First?
There's been constant talk about interest rates lately, but I'm not really sure where to invest.
I learned that bonds usually react first, but there are too many types for individual investors to navigate. Some say growth stocks are the way to go, and others say all of this will turn out to be wrong. In the end, the conventional wisdom seems to be that anyone trying to time the market loses...
So the answer is probably just to diversify and hold for the long term, right?
5 answers
Bonds come first, facts.
Well, I think 'rate cuts = growth stocks rally' is a somewhat risky formula. Expectations of a cut are often already priced in, so it's been quite common to see a correction when the cut is actually confirmed, as the catalyst has played out. And for an individual to time that is next to impossible.
I worried about the same thing, and in the end I’ve just been dollar-cost averaging into a mix of bond ETFs and index ETFs for over five years. Honestly, the returns might not be the best, but it’s definitely less stressful than being glued to the news trying to time the market. I sleep well lol. It’s true that diversification + long-term holding is a boring answer, but the boring stuff tends to last.
I wouldn’t recommend that retail investors pick individual bonds directly. There are too many types, and you have to consider taxes and maturity structures, so a bond ETF is just better.
The saying that everyone who tries to time the market loses is only half true; setting rules to avoid timing altogether and sticking to them is itself a skill. If you just hold for a long time without thinking, you’re simply earning market-average returns, and that’s not bad, but calling it 'the answer' feels like a rather lazy conclusion.