Five reasons why a higher interest rate is a good thing

Potential home-buyers may view the 0.25% hike in interest rates as negative, but there are positive aspects as well.

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Plenty of potential home-buyers have been complaining about rising interest rates, but the Financial Post provides a “glass half-full” view, offering five key reasons why rising interest rates may be good news. Here’s what he says:

  1. The 0.25% hike will make people think twice before taking on debt beyond their means
  2. It will help cool the housing bubble in Vancouver and Toronto
  3. Cash in money market mutual funds will earn more, encouraging people to save
  4. Bonds will perform better than expected
  5. Inflation is not a major threat

56 comments on “Five reasons why a higher interest rate is a good thing

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  6. Hello, I’ve worked with various investors and prospective buyers in the sales and trading field. Can really testify to this article. Well-written too. I’d like to add in my fair share of the experience if you’ll allow me. Usually, I don’t take my time to do so, so this is considered out of the norm for me. Standard investment advice goes: Unless you really know what you’re doing and I mean REALLY know you should really go mutual index fund S&P 500 (read the NOVA article by Delos Chang on technical/fundamental analysis). The poster here has a lot of great information and insight but the rest of us mere mortals we’re better off ensuring a modest return on that $1000 that Grandma gave us instead of throwing it all into junk bonds. Look what happened to Milken. I’ve worked with Goldman Sachs and I’ve talked to a few people in the hedge fund business too – most would agree. If you want more information, I’d say go ahead and read the NOVA Delos Chang article I provided above or A Random Walk Down Wall Street. Both propose the same ideas – hope that convinces you!

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  7. Simply amazing ! I’ve worked in the financial sector myself (interned at Morgan Stanley so I’ve been in the position of observing a lot of investors and underwriters going through IPOs. Since then, I’ve moved from hedge funds to an entrepreneurial start-up so I’m still in a remarkably bright position to observe human behavior. Although I wouldn’t say that I’m an master at investing in any way, I do know that while you can make a killing from day trading, your chances of competing with other informational traders (people who really know the stocks) are slim..and don’t even mention the dealers and brokers who have their own reputation and assets at risk! My advice: if you are looking to invest for asset management reasons, go ahead and take a brief read at an award-winning essay by Delos Chang that talks about the S&P 500 as a more reliable and surefire return than any sort of day trading. With the inflation, drug wars, stock bubbles, mortgage housing crises these days, you can’t just keep paying transaction costs or the capital gains tax will really make you bite the bullet (even if you’ve made a negative profit from inflation!). Opportunity cost – economics 101.

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