I am bemused by why the market gets so fixated about central banks’ interest-rate decisions. It strikes me as a dreadful waste of time.
Take the US Federal Reserve as an example. It is mandated to keep prices stable in order to drive economic growth that will, hopefully, promote maximum employment. What is so wrong with that?
It is known as the Fed’s dual mandate that was shaped in the 1970s when the world experienced an inflation shock that led to high levels of unemployment. Nobody wants to go through that again, ever.
Consequently, the government at the time said the Fed must in future ensure maximum employment (whatever that might mean), stable prices (whatever that might mean, also), and moderate long-term interest rates (whatever that means, too).
So, the Fed is charged with keeping prices stable, making sure that as many people as possible are employed, and ensuring that prevailing interest rates don’t hamper long-term economic growth. Eagle-eyed readers will notice that the Fed has three mandates rather than two. But stable prices and interest rates can be considered the same thing.
So, here it is, again. What’s all the fuss about? I am not alone in raising a quizzical eyebrow about the market’s obsession over the level and duration that interest rates could remain high. Warren Buffett once said that he wouldn’t change a thing he does even if the Fed should tell him what its monetary policy was going to be over the next two years.
Thing is, we are investors or least we should be. We are not traders who try to second-guess the future direction of interest rates. Our job is simply to look for good companies to invest in, regardless of what central banks might do about interest rates. And as an unashamed income investor, I only have one mandate – not two, not three or even four mandates.
My objective is to maintain a portfolio of shares that can continually increase its payout at a rate that is faster the rate of inflation. It could be yours, too. If we can ensure that our income stream is rising consistently, then there is a good chance that in the long run, our portfolios should rise in value too.
For me as an income investor, it’s really that simple. I put together a portfolio of good shares that can deliver rising dividends in both high and low interest-rate environments. It is my secret to salary independence.
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