Compounding, as you have read, is reliant on patience. But it goes faster if you’re earning higher rates of interest. Your Survival Guy isn’t recommending that you reach for yield, but simple mathematical reality says that if you compound at a faster rate, you’ll double your money sooner (see the rule of 72).
With newly confirmed Federal Reserve Chairman Kevin Warsh readying for his first Federal Open Market Committee hearing, beginning on June 16 and finishing on June 17, there’s a lot of speculation about how he’ll approach interest rates.
President Trump has made it clear many times that he wants rates lower, but Warsh hasn’t ever been what I would consider a “dove,” and in light of recent inflation data, the market is planning for rate increases before we see rate decreases.
When rates are up, it can hurt companies because it costs more for them to finance their debt, but lenders and investors buying debt can earn higher yields, and remain at the upper levels of the capital structure pyramid.
Action Line: When you want to talk about comounding and interest rates in your portfolio, email me at ejsmith@yoursurvivalguy.com.
