Hello everyone, I will post my opinion of some economic news here every week (I will try to keep it up).
This week, I read an article in the New York Times about a Federal interest rate cut (https://lnkd.in/dSFtyVXm
). Recently, the central bank announced a cut in the interest rate by half a point to reduce the risk of deflation after the inflation became less intense; as a result, all the stock indexes started to rise on their market cap. More people turned their money and attention towards the stock market investment. Although the stock market growth benefitted many investors, this new change in policy did not help with the nation's savings.
Saving in banks is a crucial part of personal finance because it is always safe to have backup money in case of losing a job, and it also prepares enough money for retirement. However, with a lowered interest rate, many people stopped saving their money; they used it for more investments. When a person retires, they would find themselves without enough money saved for retirement, but it would be more difficult for them to find a job since job markets most of the times look for someone young. Without saving, the retired people would find themselves in an awkward situation.
Currently, the stock market may be an option for investment since it offers a 7% yield of annual returns. That doesn't change the fact that the stock market is a reflection of the economy's situation (it won't help when the economy situation is in a bear market). Investors lose money if the stock market falls. Thus, the stock market may not be the best sustainable option for the long term.
The new policy of cutting interest rates may be an effort to reduce he risk of deflation, but contains the negative affect of discouraging saving would not benefit a person's finance for the long term. Saving is very important for personal finance and retirement plans. My suggestion for everyone is to save money in banks despite the interest rate being lowered; although one would not profit much through the lowered interest rate, bank is still a stable place to save money for back up and retirement.
You can also read this article and my other blog posts on my LinkedIn account: www.linkedin.com/in/weizhi-chen-67b2bb2ba
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