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What Do These Low Interest Rates and the Crazy Stock Market Actually Mean for Me Right Now?

If by some miracle you actually have some spare cash, now’s the time to buy, and to invest

These are deeply weird and unpleasant times we’re currently living in: We’re all supposed to sit at home for the foreseeable future and work, while simultaneously worrying about our jobs. Meanwhile, hundreds of thousands of people are freshly unemployed. And yet, in the midst of all this, the stock market seems to be bipolar and interest rates are astonishingly low. Should people be taking advantage of this if they can? If so, how? Is now the time to buy a house? Can you somehow benefit in the long term, even though you’re burning through your savings now? Alongside Stephen Brincks, a professor of finance at San Diego State University’s Fowler College of Business, we’re investing in some answers.

So, about those interest rates. Um, what’s happening?

They’re about as low as you’ll ever see, and there’s a chance they’ll go lower. As Brincks explains, low interest rates give you an advantage as a borrower, which means you can get a loan at a generally cheaper rate. That is all to say that if you’re thinking of home ownership and have the ability to put money down and take on a mortgage, now is a great time to buy. And if you already own a home, now is a perfect time to refinance and save yourself a lot of money in the years ahead. 

Interestingly, Brincks says that interest rates should actually be even lower than they are now. Generally, mortgage rates are based off of the 10-year Treasury note yield, which is less than 1 percent right now (a month ago it was over 2 percent, he says). But rates have fallen so quickly that mortgage rates haven’t gone down as much as would be expected, because everyone’s nervous. If the Federal Reserve does indeed step in and buy unlimited quantities of debt, as officials say they will, this will likely include mortgage-backed securities. Rates are below 4 percent now; when things settle down a bit, Brincks says rates will probably drop below 3 percent, maybe 2.75. “That would be a great time [to get a new mortgage] if you have the money, because it’s tough to see that you’ll ever get a lower interest rate than that,” he says.

And what’s with the stock market? It’s up one day, down the next. Seems dicey?

It’s not, really, if you’re in it for what Bachelor contestants like to call “the right reasons.” Ideally, an investor should set aside the same amount of money every month or every year when they buy equities — this way, when you buy both the ups and the downs, you get the average rate of return over time (and the stock market famously outperforms nearly all other assets over a long enough timeline). But in terms of now, heck yes — it’s a great time to invest. As of Monday, the stock market was still on a steep slide, down more than 30 percent, which, Brincks says, is in line with past recessions.

It’s been said that the stock market is the only market where no one buys when things go on sale. And when you buy when prices are low, that means you have a higher rate of return going forward when things do recover.

Investors are scared, though, right?

Sure. The whole reason that stocks have a higher rate of return than other investments is because they’re more volatile. Yet when things take a plunge, you’re damn right it’s psychologically difficult for people to open up their retirement account and look at their balance these days, and then decide to invest more.

Brincks says the media can also take a bit of blame for that. The media generally reflects the mood, but it has an amplifying effect as stories are written about people pulling money out of the stock market and putting it into safer assets. But if you let it get to you and it makes you fearful, “unfortunately that can hurt you if you don’t buy going forward,” he says. It’s best to just stay the course.

Are things different this time, though? We’re talking about a global pandemic, not a bunch of reckless asshole banks.

There’s a lot more volatility because of the short timeframe. In most recessions, it takes several months or quarters for stocks to hit their low, but COVID-19 put everything in fast-forward.

Is there somewhere else I should put my money, then?

Brincks says that because of low interest rates, there aren’t really other alternatives, and rates will likely remain low for the years ahead as the economy recovers. So for now, investing in cash won’t yield anything. Bonds will likely rally in the short run, but yields will likely soon drop. He expects stocks to be paying higher dividend yields than bonds will, “which is very abnormal and generally means that stocks are undervalued by that measure.”

Totally understood all that, yup. Er, is there any way to make good money in the short term?

The stock market is generally only a get-rich-quick scheme in the movies — it’s a marathon, not a sprint, as the cliché goes. It goes up and down in the short term, but in the long term it always trends upward. Brincks says a three- to five-year minimum is required for stocks, in order to ride out the volatilities.

When’s it going to bottom out this time?

Trying to time this is a fool’s errand. Sure, it might plunge some more, but you shouldn’t let that affect you. If you’re interested in investing nowadays and have the endurance, you’ll still have a great rate of return at some point in the future when the market finally rallies again. 

But why are all stocks down when companies like Amazon must be killing it right now, with everyone stuck at home?

There are two main reasons stocks go down. Cruise lines and other travel- and hospitality-industry stocks, well, it’s clear why their share prices would go down. But it also comes down to that aforementioned general panic about the economy, in which people move their money into safer investments in a mass sell-off. That forces everyone’s prices down, even if their company earnings are ultimately going to be higher during all of this. It won’t impact them long-term. In fact, many tech companies will come out of this just fine (or better than fine) long term, with most people stuck at home and communicating via technology.

Say I scrape a few bucks together to invest — what do I do?

Now is definitely a good time to put money in, Brincks says — but don’t put it all in at once. Divide your pile into fourths or fifths, then put each fraction in once a month. Doing this allows you to get an average price. “If things go further, then you can buy at a cheaper price — and if things go up, well, you’ve made some money on your existing investment already,” he says.

So even though things are haywire now, some patient investing — if you can afford it right now — can earn you some nice returns in the years ahead, when all this madness is finally, hopefully over with.