What's up, graham, it's guys here and uh? Well, it happened after more than two years of patiently waiting, the federal reserve has just officially announced the first rate increase since 2018, making it the beginning of a brand new market cycle. That's about to change everything at the core. This is going to have a ripple effect throughout home prices, stock market values, savings accounts, credit cards, auto loans, personal loans, student loans and, ultimately, in one way or another. You will be directly impacted by these changes.

Some for good and some for bad, so without dragging this out any longer than it needs to be. Let's talk about what just happened. The new changes that are about to go into effect what this means for you, which of your investments, are most likely going to be affected and then what you could do about this to make money, or at least not try to lose a lot of money. But before we start just like the federal reserve has raised interest rates, it would mean a lot to me if you raised the like button for the youtube algorithm or subscribed, if you haven't done that already.

So. Thank you guys so much and also big. Thank you to public.com for sponsoring this video, but more on that later, all right. So to start, all of this begins with what's called the federal funds rate, which is a really fancy way of saying.

This is the interest rate that banks charge other banks anytime. They lend each other money seat. Banks are required to keep a certain amount of cash within their systems at all times as a reserve and if they have less money than they need to. At the end of the day, they could borrow that money from another bank to meet that minimum requirement.

But if a bank has more money than the required amount, then they could lend that money to other banks and get paid back with interest and that rate will indirectly influence everything from your savings account. Interest rate your auto loan interest rate and even your mortgage interest rate. But since march of 2020, the fed had lowered those interest rates all the way down to zero percent as a way to incentivize. More borrowing promote more spending and get more money back into the hands of consumers and businesses during a time where everything was shut down.

However, as i'm sure we all know, these conditions cannot last indefinitely and in the wake of record high inflation, the federal reserve has just announced a 25 basis. Point rate hike effectively shrinking the supply of money that enters the economy by making it more expensive. To borrow, think of it, this way, when the federal funds rate increases financial institutions have to pay more, which means they have to charge higher interest rates on their products, which means you have to pay higher interest rates as a result, the goal is that by increasing Interest rates, consumer demand should begin to shrink, growth should begin to slow down, and hopefully, inflation gets back to its two percent target. Although the downside and the risk is that these increases are about to impact every single aspect of your personal finances, and it's not all good now, usually it's a good idea to get the bad news out of the way first.

But today, let's flip that around and talk about the good news that almost everyone is very quickly going to be made aware of, and that would be savings accounts for the last two years. You've probably noticed that most banks, including high yield savings accounts, are not paying. You a high interest rate at all. In fact, most banks paid you absolutely nothing on your uninvested cash and even the best were paying about a half a percent interest rate during a time where inflation was seven and a half percent.

So that was bad now in a way, this type of scenario incentivizes people to go and spend or invest their money, because if they leave it to sitting there in a savings, account they're going to be actively losing money. But that's about to change now that the federal reserve has begun to raise rates. Savings account will start to pay a respectable interest rate. For example, synchrony bank just raised their cd rates to one percent nationwide is gearing up to offer two and a half percent to their customers, and many more are expected to follow.

Now, unfortunately, don't expect your savings account to start to pay you hand over fist with three percent interest anytime soon, but as the federal funds rate begins to rise as expected throughout the rest of the year, you could most likely anticipate that your savings account will start To pay you a little bit more money now, even though this is just speculation, most likely traditional brick and mortar banks like bank of america chase and wells fargo won't give you much of a difference because they're so flush with cash and don't have to compete for More but high-yield online banks like ally, marcus and synchrony will probably begin paying anywhere from .75 to one percent interest on certain account balances, which is almost double what they're paying now. Second, we got the stock market when it comes to interest rates. There's no shortage of charts and graphs out there showing how stock prices took off the moment. Interest rates began to decline, drawing the conclusion that as soon as interest rates go back up, the stock market has to fall back down.

But is there any truth to that and what's the real impact that interest rates have on stocks based on science? Well, on the most basic level, these charts are right. Low interest rates help fuel growth by making money cheap and accessible to borrow, and that in turn promotes more spending which results in more profits. But there's not a one size fits all approach that says: high interest rates are bad low interest rates are good and here's what i found very interesting. Recent data found that the s p 500 only had two losing years since 1990, when the federal reserve was raising interest rates, a nine percent decline in 2000 and a four percent drop in 2018., and even though it seems like a direct correlation that high interest rates Are automatically bad, it's not so clear-cut.

Since the 1960s, even throughout interest rate, increases and decreases, the stock market has continued to go up. If we then take a closer look since 2017, we could see that, throughout several rate hikes the market defied the odds and kept going up. Blackrock even mentioned that since 1995 and months where the us 10-year treasury yields rose by more than 50 basis points over the following three months, the s p 500 posted a price gain of 3.2 percent, roughly 100 basis points higher than a typical month. The financial samurai blog also found that the s p 500 has, on average gained 20 percent in a rising interest rate period since 1971, which could often span over several years.

He explains that, in order for this to be true, the federal reserve must slowly raise interest rates and effectively communicate their intentions so that the market doesn't freak out which so far in 2022, the fed is done. The reason for this is that generally rates are only increased in a healthy growing economy that could handle such a rate increase. So in a way the stock market would benefit from that type of optimism. On top of that, the long-term trend of rate increases has been such that every rate increase has been unable to reach the level of the one before it suggesting that we wouldn't see a rate hike that the market couldn't already handle so overall, the conclusion is that, Yes, rising rates can lead to a rotation away from growth and tech, but other industries, like banking, industrials and semiconductors, tend to outperform, as rising rates, go together with an improving economy.

In the big picture, though, other economic conditions like demand, inflation and unemployment, will make a difference, meaning that stocks could go up during a rising interest rate period, even though, in the short term, they could also go down. Speaking of going down, though, the one sector which has the hardest time with the rate increase, is something that we have to talk about, and that would be real estate, although before we go into that speaking of stocks, as some of you know, i've been using public.com As one of my favorite low-cost brokerages, because they don't route your order flow and today they have a pretty incredible announcement as the sponsor of this video. For those not aware, public.com is an investing app that allows you to buy into stocks funds and a multitude of cryptocurrencies to build a modern, diverse portfolio, although on top of being a convenient mobile app, they also just launched a desktop version that offers an enhanced portfolio Overview with customized ways to track and analyze your positions over time, you can also sort your portfolio by asset name, price, daily change, all time, change or percentage of total holdings and easily tap to buy or sell stocks, funds and cryptocurrencies just as easily as on the App plus, you can now track who your portfolio does relative to major market etfs like the s p, 500, nasdaq, dow jones and russell 2000. In addition to that, public.com recently announced their acquisition of the platform otis, which allows you to purchase fractionalized, alternative and cultural assets, including collectibles, art, nfts and much more meaning.

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So now the one you've been waiting for rising interest rates versus real estate. Now, on the surface, it makes sense that the higher interest rates go, the less a buyer. Could afford and as a result home prices drop, but the more you look into it. The more you begin to realize that it's not that simple! Yes, like i mentioned a home, is a purchase that will be directly impacted by the interest rate that you pay on a mortgage.

For example, if your budget is two thousand dollars a month, you could afford a four hundred and seventy five thousand dollar mortgage at a three percent interest rate. However, if interest rates increase to five and a half percent that very same two thousand dollars a month, only gets you three hundred and fifty five thousand dollars, which is a hundred and twenty thousand 000 less that you could purchase not to mention as a buyer. It's said that every one percent increase in rates reduces your purchasing power by 11, but the truth is just like stocks, there's not an easy answer. If we look back historically, we could see that after world war ii, housing prices continued climbing right, alongside with interest rates.

After that rates dropped and housing prices continued to climb even further. It was also found that overall, a change in interest rates has not substantially impacted housing values, meaning that most likely there are other factors that have an even bigger impact on prices. For example, in 2018, when interest rates were increased and the stock market subsequently fell, almost 20 percent home prices also fell some for the first time since the great financial crisis. Why well rising interest rates weren't the entire picture buyers also factored in the stock market decline.

Thinking that maybe things could get worse, and maybe it's better to wait, robert schiller, the king of the shiller price index, was even quoted as saying there's, not a tight fit at all between the two high mortgage rates do not translate automatically into low home prices and Then he backed it up with this chart here, as you can see, even despite interest rates being increased and subsequently lowered home prices continued to go up almost as though it ignored every single conventional piece of advice that it should make a difference. All of that is to say that, even though higher interest rates directly impact home affordability, other factors like local market conditions, supply demand, inventory unemployment, inflation, tax deductions and to changing population also have just as big of an impact. However, one last point to mention is that even if interest rates go up and housing prices go down, your monthly payment could remain the exact same in both scenarios. That's because if the previously four hundred and seventy-five thousand dollar home was two thousand dollars a month at a three percent interest rate, even if the home price drops to three hundred and thirty-five thousand dollars, it's still costing you the exact same amount.

At a five point. Five percent interest rate simply because interest rates went up so in the big picture. Yes, we could see a decline in real estate values as interest rates increase, but other conditions play just as big of an impact, and that is why housing prices could remain fairly expensive. Even if interest rates continue to go up, and finally, we got the one aspect - that's most likely to increase for the majority of americans out there and that would be debt.

Here's a pretty sad statistic: the average credit card debt in the united states is 6 270 and more than 45 of households carry some type of credit card debt at all times. On top of that, 40 of millennials say that this is their biggest setback and in terms of their overall revolving debt, it stands at a whopping, 28 000, which means their payments are about to go up even more see. Most revolving balances have what's called a variable interest rate, meaning their interest. Payment is in some part correlated to the prime rate, which is influenced by the federal reserve.

When that interest rate goes up, credit card companies charge more as a result, and one report warns that your interest rate may soon begin to go up as soon as right. Now now, in terms of how much it'll go up by expect an initial increase of anywhere from one to three percent, but for the average american with 28 000 worth of revolving debt, a three percent increase would be the difference of an extra 80 a month in Interest and it's only the very beginning, the interest rate increase also affects the price of any other debt that you could even think of from personal loans, car loans, mortgage rates, margin, debt or anything else. That's pegged to the prime rate. In this case.

Getting a loan is going to be incrementally more expensive and that's expected to put some downward pressure on demand and cool the rate of inflation. This is the federal reserve's way of taking money out of the economy by making it more expensive to borrow, and that in turn, should stop in demand. Now, realistically, though, for most people who don't have the money to pay off their debt in full expect that this increase is going to cost you a little bit more money and expect that the cost of borrowing in the future is going to be slightly more expensive. Every single time this happens now on the bright side, though, rates are still incredibly low, and even with this, it's not a huge change up front, but if they continue to raise rates at the same pace, then things are going to get a lot more expensive on Debt so pay it off as soon as you possibly can.

And finally, as far as where we go from here, the fed has made it very clear that they expect to continue to raise rates over time to help combat inflation. But on the bright side they say that they'll effectively communicate their intentions ahead of time. So that way, the market somewhat knows what to expect now in terms of what we might see in the future. Current pricing has risen to indicate a 70 chance of a larger 50 basis.

Point rate hike in its subsequent meeting in may, due to concerns about inflation, with the mention that the fed has never raised interest rates when the yield curve is flat and volatility's so high. Most likely, unless we get any new, shocking information, the fed is going to be planning on multiple 25 basis, point rate hikes on a regular basis, with seven of them being priced in throughout the year. While the fed takes a wait-and-see approach, as consumer prices, hopefully come back down now, whether or not the pain is behind us is yet to be seen. But since this has been such a highly anticipated event now for almost two years, it's expected that we're gon na see more volatility than usual, and maybe the market can begin to look forward to a brand new environment.

As far as what you could do about this, practically it's probably best to pay down any variable interest rate debt always get a fixed rate loan. If you're worried about interest rates rising even further and the boring answer, is it's probably best to stay the course? Ultimately, as the previous examples have shown us, both stocks and real estate can continue going up, even when interest rates go up, although anything can happen. So i'm not fundamentally changing anything except adding my new weekly email newsletter that just goes through all the video recaps that i post during the week. So if you want to see a written outline of that, the link is down below in the description and it's totally free.

So with that said, you guys thank you so much for watching also feel free to add me on instagram or on my second channel. The gram stefan show where i post a video there every single day, i'm not posting a video here. So let me know what you think: all the links are down below in the description. Thank you so much for watching and until next time,.

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