Why Interest Rates are Lowered

Usually it’s lowered to boost the economy so people are encouraged to borrow money (interest rate is low) and use it.

Who is happy when interest rate gets lowered?

  • debt holders (but credit card interest doesn’t get lowered usually…)
  • bond holders (because bond price has an inverse relationship with interest rate)
  • People getting or renewing a mortgage (because mortgage rates follow the benchmark rate)
  • People getting a loan

This cartoon is on sale at My Store.

Why Interest Rates are Raised

The real reason why interest rates are raised.

Last week, Bank of Canada hikes overnight rate for second time in two months.

This cartoon is available from my Store.

Job Interview and Credit Score

According to this huffington post article, credit check on job applicants are increasing in Canada (but being clamped down in US)

Other situations where you could become that deer in the headlight if you have bad credit:

  • applying for a loan/mortgage/credit card
  • applying for a rental (“Credit Check/References required”)
  • obtaining new cell phone/utilities (you might have to pay a deposit if you don’t have a credit history / or have a bad credit)

Keep your credit score good by regularly monitoring & taking steps to make it better.

You can get your credit report from major credit reporting agencies like Equifax & Transunion (in Canada & US).

Above cartoon is available for sale here (under different licensing options.)

Investing in Index Funds

If you have enough cash to invest, and not sure what to do, you can listen to one of the richest man’s advice. His name is Warren Buffett. Buffett has long advised his followers to stick to low-cost, passive index funds, which can offer broad exposure to the stock market and cost a fraction of actively managed funds.  When actively managed funds do not perform well, you can blame the fund managers – but you still need to pay the MER (the embedded fee charged by the mutual fund).  For index fund, you only have Mr. Market to blame when your investments go bad. And the fee charged by those funds are much lower.

If you are curious about how index funds work, I recommend this article by Moneysense magazine. The portfolio you can make from the various index funds are called the couch potato portfolio and very easy to set it up.

You can automate the purchase every paycheque and utilize dollar-cost averaging too, so you won’t get hurt so much if there’s a sudden market downturn like my cartoon characters.

This cartoon is for sale here, perfect to use in presentations for financial concepts.

 

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