How Does The Fed Raise Interest Rates?

If you’ve been watching financial media lately, there has been plenty of discussion regarding the Federal Reserve raising interest rates.

So…how exactly does the Fed do that, and what effect can it have on the stock market?

For starters: the Fed doesn’t actually increase the interest rates directly.

The Fed has something called a discount window.  The discount window is where banks, such as Chase and Bank of America, go to borrow money in order to maintain their reserve requirements.  The reserve requirement is the amount of funds a bank must have on hand at all times.

So what happens is that the Fed will increase the discount rate they charge banks.  The banks then take the increase and pass it on to us, the consumers, by raising their rates.  That, in essence, is how the Federal Reserve increases interest rates.

A rate increase can cause sell-off in the stock market as investors, attracted by higher rates on bonds, certificates of deposit (CDs) and savings accounts, move their money into these “safer” places to avoid risk.

As I stated in yesterday’s post and in my book, events like this don’t matter when you’re investing for the long-term.  Hold, hold, hold.

 

Give the Gift of Knowledge

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Almost anyone could benefit from receiving a copy of The Stock Market is For Everyone as a gift, because we all should have financial freedom as we advance through life.

At 24 pages, it’s a quick, easy read – and it gives you the basic information you need to know to get started right then and there.  No jargon, no unnecessary terminology.  Start with as little as $25.00, develop an investing habit that sticks for life, and watch your wealth grow.

Who will you share the gift of knowledge with this Christmas?

Will We Have A Bear Market In 2019?

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Photo: Eve Livesey.  

Good morning.

“Are we in a bear market?”

“What should I do if we’re in a bear market?”

As the end of the year approaches, you will start to see many financial newsletters calling for a bear market in 2019…especially considering the way the second half of this year has gone.

Throw in the potential Fed rate hikes, as well as the trade spat with China (reportedly resolved as of yesterday, but who knows?), and you have a recipe for a recession – which could lead to a bear market.

The truth of the matter is that no one knows for sure as to what next year will bring.  I wouldn’t be surprised to see the market continue to move higher, and a bear market wouldn’t shock me either.

The last bear market we had was between 2008 and 2009.  It lasted for 15 months.  Since the 1930s, the U.S. stock market has had eight bear markets, lasting 1.4 years on average.

So what should you do if there’s a bear market?

It depends.  If you need your money in the next three years, you should probably take it out of the market.  If this year has taught you anything, it’s that you never know when a market sell-off is going to happen.

If your time frame is more long-term, which I hope is the case, then do nothing.  If you are a regular investor, and you have a fixed amount that you invest each month, then continue to do so.  If we have a bear market, you will have bought stocks at some very good prices.  Do not listen to the pundits that tell people to jump in and out of the market because they believe a bear market is coming.  I said it before and I’ll say it again: it is impossible to successfully time the market.

We here at Wealthy Joe are long-term investors.  We don’t let a sell-off or bear market scare us out of owning great businesses for the long term.

 

The Stock Market is for Me: AnneMarie’s First Year

I wrote my book, The Stock Market is for Everyone, and started this blog to educate, inspire and inform the average Joes and Janes out there who know nothing about investing or the stock market.  

It has been nearly a year, and I’m happy to know that several of you have taken my suggestions and are now invested!  I’d like to feature your stories in future posts so that together we can inspire even more people to begin their journey to financial freedom.

AnneMarie is a beginning investor who shared her story here last year.  She’s back today to talk about what her first year as a stock market investor has been like:

ANNEMARIE’S STORY, A YEAR LATER

Hi, everyone!

I’m pleased to be returning to the Wealthy Joe Investing blog to talk about how my investing is going.

When I left you last fall, I had been investing for a couple of months using the Robinhood app.  I held stock in two companies and my portfolio at the time was worth a few hundred dollars.

Today, in addition to my Robinhood account, I have a Roth IRA through TD Ameritrade.  Between the accounts, I hold stock in eight companies.  Both my accounts have made money since I opened them, and the value of my entire portfolio is a little over two months of the net salary I make at my 9 to 5 job.

I fund my accounts via a percentage of my biweekly paycheck (usually around 10 percent), through side work, and using the Dollar-a-Day method.  I didn’t experience some windfall that caused me to have money to invest; my freed-up funds largely came about through habit changes like preparing my own meals instead of ordering takeout.  This was all money I would have had anyway.  I simply made the choice to use it to invest in my future financial freedom instead of engaging in meaningless consumption.

I LOVE investing.  And it’s not because of the returns.  Yes, the stock market rises over time, and it’s definitely the best place to be putting away money for my future.  But that’s not why I love investing.

I love investing because when I buy stock, I become a part owner of a company.  As a shareholder of eight companies,  it’s in my interest to follow them, to read about what they’re doing, to be able to explain to others why I’ve invested in them.  That is the absolute most exciting part of investing for me.

Two of the companies I own shares in are Myovant Sciences (NYSE: MYOV) and Roku (NASDAQ: ROKU).  Myovant is a biopharmaceutical company that is testing an investigational treatment for uterine fibroids, endometriosis  and prostate cancer.  Roku is the leader in TV streaming devices.  I am excited about what both businesses are doing and about the growth potential of each.

As a result of becoming invested, I’m learning things I never knew about before, and never thought I’d be interested in.  As a shareholder, I feel as though I am a direct participant in growth and innovation that is transforming our world.

Investing in the stock market is good for me financially, intellectually, and psychologically.  It’s hands down the best decision I have ever made, and I hope that those of you who haven’t started yet do so.  The time is now!

 

 

 

Did you get started yet?

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So…we are approaching the halfway mark in 2018.

After a bumpy start to the year, stocks have recovered, and prices are near all-time highs.

My question to you is: have you gotten started?  Have you opened your first account and bought your first stock?

If you have…congratulations!

If you haven’t…what are you waiting for???

If you’re trying to time the market…well, that’s impossible.

If you feel money is the issue, find something you can cut back on.  Or figure out a way to earn more.  There is always a way.

You may be missing out on the greatest wealth-building opportunity of your lifetime if you don’t get into the stock market.

I have a friend that, two years ago, didn’t know a thing about stocks or investments. She grew up believing that investing was for other people, namely rich people. She was programmed to think investing was like going to Vegas.

It didn’t take long for me to convince her that nothing could be furthest from the truth!

I taught her the ABCs of investing, and now she’s a full-fledged investor.  She doesn’t earn a lot of money at all.  But she’s made the sacrifices she needed to make in order to start creating wealth.

I would very, very much welcome your comments on this post.  If you started investing in a similar way to the lady I described above, I’d love it if you shared your story here.  If you haven’t started, talk about what’s keeping you from doing so.  I would love to hear from readers and get a conversation going!

To your wealth…