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Learning, Sharing, and Teaching => Investor Alley => Topic started by: gpyros85 on July 11, 2018, 10:32:26 PM

Title: Savings Account Rates Keep Creeping Up and Stock Investment Reaction
Post by: gpyros85 on July 11, 2018, 10:32:26 PM
My savings account just raised rates to 1.75% from 1.60%. This puts more pressure on stocks because the NO RISK interest rate environment is getting more competitive.


With the raising interest rate environment this does not seem to stop anytime soon. This will eventually cause a re-pricing of stocks.


Thoughts?
Title: Re: Savings Account Rates Keep Creeping Up and Stock Investment Reaction
Post by: jacoavluha on July 11, 2018, 11:59:15 PM
Rates are rising for several reasons, including global uncertainties and some feelings that equities are nearing a top. Savings accounts are lagging behind some but coming up to where they’re almost but not quite worth it, I prefer prime money market paying 2% or 6 month T bills paying a hair over 2% and are exempt from state income tax
Title: Re: Savings Account Rates Keep Creeping Up and Stock Investment Reaction
Post by: One on July 12, 2018, 12:35:42 AM
Quote from: gpyros85 on July 11, 2018, 10:32:26 PM
My savings account just raised rates to 1.75% from 1.60%. This puts more pressure on stocks because the NO RISK interest rate environment is getting more competitive.


With the raising interest rate environment this does not seem to stop anytime soon. This will eventually cause a re-pricing of stocks.


Thoughts?

You are correct
Title: Re: Savings Account Rates Keep Creeping Up and Stock Investment Reaction
Post by: bwall on July 12, 2018, 01:10:09 AM
If the interest rate continues to climb, as expected (early indicators; job creation, wage growth, PPI index), then stocks are now overpriced.

If interest rates stay steady at 2% or thereabouts, then stocks are now cheap.

The big question is of course where we are on the curve.
Title: Re: Savings Account Rates Keep Creeping Up and Stock Investment Reaction
Post by: DS on July 12, 2018, 09:49:01 AM
One thing's for sure: Top is in.
Title: Re: Savings Account Rates Keep Creeping Up and Stock Investment Reaction
Post by: DreamFIRE on July 12, 2018, 09:53:58 AM
Quote from: gpyros85 on July 11, 2018, 10:32:26 PM
My savings account just raised rates to 1.75% from 1.60%.

You're still losing money to inflation, which is going up.  Stocks are a much better investment over the long term.
Title: Re: Savings Account Rates Keep Creeping Up and Stock Investment Reaction
Post by: boarder42 on July 12, 2018, 09:57:05 AM
if by risk free you mean guaranteed to lose to inflation you are correct! but i consider that a large risk. more of a risk that stocks.
Title: Re: Savings Account Rates Keep Creeping Up and Stock Investment Reaction
Post by: Radagast on July 12, 2018, 01:41:28 PM
Your Rate: 1.75%
1-Month Treasury Bill: 1.9%
Expected Forward 10-year Inflation: 2.2%
Expected S&P500 10-year Returns: Inflation + 4% (+/- 8%)
Historic Equity Risk Premium: 4% (very similar to what the numbers above show it is now)

Hit the snooze button.
Title: Re: Savings Account Rates Keep Creeping Up and Stock Investment Reaction
Post by: Rob_bob on July 12, 2018, 03:23:42 PM
When rates are 5% over inflation then I will lighten up on stocks.  This doesn't count a dry powder reserve for investing during recessions.