Investing in the Sharemarket with Rising Interest Rates

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With property values dwindling and borrowing costs rising, more than 700,000 Australian investors have been forced to contemplate their options to remain afloat. 

Financial advisors are warning that now may be the time for these individuals to sell off shares to relieve mortgage distress.

Since the Reserve Bank of Australia started raising rates in May 2022, home values have decreased by 8.6%. In addition, capital city prices dropped by 5.3%, officially the most extensive calendar year decrease since 2008, when we were still dealing with repercussions from the global financial crisis.

Since May 2022, interest rates have escalated by three percentage points. In late December of 2022, Jarrod Purchase – a savvy marketer – sold nearly all of his investments so he could put the proceeds toward his South Yarra mortgage that he had acquired just one year prior.

When he began his role as a chief marketing officer at renowned investment platform SelfWealth, the former CMO decided to invest in 2018. Over five years, he gradually invested a total sum of $160,000.

“By investing in a combination of individual stocks and exchange-traded funds, I was able to achieve returns significantly higher than if the money had just been sitting in a bank account,” he said.

David Currie, the Director at Wealthy Self financial advice firm, commented that Mr Purchase’s scenario and point of view are prevalent among novice equity investors who also invest in real estate.

For those who obtained mortgages before October 2021, the 2.5% serviceability buffer prescribed by banks for stress-testing potential borrowers will already be exceeded. Others are near reaching this 3% benchmark currently employed by financial institutions.

“You should never feel the need to hastily divest yourself of an investment portfolio due to external pressures,” Mr Currie said.

“Regrettably, individuals are put in a tough spot due to A: insufficient income, B: excessive spending habits, C: inability to reduce expenses substantially enough or D: not establishing an emergency savings account,” Mr Currie continued.

Given the current atmosphere, investors should consider investing in the share market as an alternative to property investment. However, investors should also be mindful of their financial positions before making any decisions that could have long-term implications.

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