Conventional wisdom holds that when interest rates rise, it’s bad for businesses and thus bad for stocks. Inversely, when interest rates are falling, businesses benefit, so stocks should perform better.
Both conclusions make perfect sense … but are they supported by evidence?
In this brief, informative video, a senior researcher at Dimensional Fund Advisors plots historical equity returns against interest rates from August 1954 to December 2016 to see if there is any discernible pattern. The results may surprise you.
What isn’t surprising, however, is the bottom line: instead of trying to predict what can’t be controlled, investors should stick to a long-term strategy of diversification coupled with proper asset allocation. Future market conditions will always be uncertain; strategy and discipline will always be your most reliable guides.
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