“It all comes down to interest rates. As an investor, all you’re doing it putting up a lump-sump payment for a future cash flow.” -Ray Dalio-

Since its inception in 1913, the Federal Reserve has had a significant influence on investor psyche and investment results. Through various tactics, known as monetary policy, the Fed attempts to moderate economic fluctuations. When interest rates are low, expectations of outsized investment returns dominate the markets. As rates begin to rise, fear of lower returns permeates investor sentiment.

As interest rates rise and fall, investors have been forced to adjust their expectations. In so doing, the market has remained remarkably resilient.

The attached piece will illustrate how interest rates have changed over the last 90 years, how dividend yields have compared with 10-year Treasury Yeilds, how varying asset classes have fared under different Federal Reserve regimes, and how, inflation, not rising interest rates, may be the biggest concern of all.

 

 

 

 

 

 

Ray Dalio is the founder of Bridgewater Associates, one of the world’s largets hedge-funds