Use Interest Rates to Your Advantage: The Money Movement Strategy

While browsing for books in Book Sale, I came across a book by Charles J. Givens called "Wealth Without Risk"

What caught my attention was the page about the MONEY MOVEMENT STRATEGY:

I think all of us have an intuitive idea of how the prevailing interest rates in the economy affect our wealth and finances. All of us have heard about time deposit rates, how much interest is on your car, your home amortization, credit card and personal loans.

But interest rates can be used to your advantage too.

The MONEY MOVEMENT STRATEGY tells us that when general interest rates are: 

LOW - the economy is usually on a roll, invest in stocks or equities. The author, Mr. Givens, claims that the greatest bull markets in history have occurred on low interest rate environments. And this is not hard to believe since low interest in the economy stimulates people to buy products and take out loans. Profits roll in and there is much liquidity in the system for that can be used for expansion.

When interest rates are: 

HIGH - Invest in debt-instruments or bonds and money-market. In other words, lending your money when interest rates are high. This makes perfect sense, since this is the main principle in bond or debt investing. The higher interest rate coupons you have on your bond, the higher interest you receive from it. When prevailing interest rates go down, the value of your bond with a higher rate goes up because all the other bonds have lower rates. 

Money-market are bank the time-deposits and other highly liquid "cash equivalents". Invest in these when the interest rates are high.

According to the strategy you have to set a decision line for the interest rate. This is highly a personal or arbitrary choice.

The main interest rates in the Philippine economy that I watch out for are:

The BSP Policy Rates: Overnight Lending / Borrowing Rates

[http://www.bsp.gov.ph/monetary/monetary.asp]

and the Bellwether Interest Rates

[http://www.bsp.gov.ph/statistics/sdds/tbillsdds.htm]

You may also check:

[http://www.tradingeconomics.com/philippines/indicators]

As we speak, interest rates are at record low levels, following a stable inflation rate and other factors such as the recent investment grade ratings upgrades in the first half  of this year 2013.