“If interest rates are so high why should I invest my money?” I was recently asked by two prospective clients, who are both in their mid to late fifties, to prepare recommendations for them as they are looking to invest. Some investors are reluctant to put money to work with banks offering a more competitive yield than say a year ago. Banks typically increase the amount of interest they pay on deposits over time when central banks raise interest rates.
Everyone and their mother should always keep an appropriate amount of cash in the bank regardless of the interest rate trends. It makes a lot of sense because keeping money in a bank account provides safety and liquidity, making it a suitable option for short-term savings and emergency funds.
The additional funds to be invested depend on your financial goals, risk tolerance and investment horizon. Of course, there is no free lunch. Investing comes with inherent risks and there are no guarantees of anything.
Some investors know at some point they will need to get into the game, but many are waiting for the perfect time to get in. Timing markets is notoriously difficult. There is a greater risk of market timing for certain investment funds that offer strong capital preservation and consistent growth regardless of the economic and market conditions.
A number of them have not posted a single annual loss over the years on my radar – a comfort for anyone who can’t stomach annual losses. It’s always better to be early even though human nature ensures that most of us have a tendency to come late to the party.