Investing 102

[GregWeld]

Originally Posted by Woody

One thing to watch out for with REITS is that they are very interest rate sensitive. If you believe we are going into a rising interest rate environment you could expect lower share prices. The last few weeks is a pretty good example. As the 10-year yield has risen, most REITs share prices have declined.

I've warned here many times - that when interest rates rise - stocks die. Of course this is over simplification... but it's very very interrelated and must be given some measure of attention. However... if you went in and out of stocks over every interest rate move - you'd just be losing time and again so that's really a dumb strategy. The better strategy is that NEW MONEY would go into a higher yielding "whatever". Let's say tax free bond rates hit 6%... then that's where you'd put some new money to work. The problem with bonds is that they don't come with the compounded growth that stocks do over time... and generally -- if it's s dividend paying stock - the price action (taking the share price lower) is supported by the dividend -- so when you buy new shares at lower prices - your yield (dividend percentage) has risen... so you get a new blended rate of yield.

This is when things can get complicated --- but that's also usually easily explained = normally foreseen - and discussed when these thing occur.