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We have heard for a very long time that interest rates will be rising. As you know, rates are now on the move. The Fed Funds rate, which applies to funds that banks lend to and borrow from each other through the Federal Reserve, has been raised to a target level of 1% – 1 ¼ %. This is the rate we normally hear about when the “Fed” raises or lowers rates. The rate had been unmoved since the end of 2008 as a response to the financial crisis. It stayed there until December of 2015 when it began its slow rise. Multiple rate increases are now projected over the next few years. Changes in this rate do affect other fixed, short-term funds. Eventually the longer-term rates are also impacted. Some rates change immediately like the Prime Rate.
A great many factors affect interest rates, and knowing which ones might have the greatest impact on any given day or period is impossible. Those factors include the Fed’s outlook and actions, geopolitical developments, inflation, the strength of the economy, multiple market factors, and emotions. Overall, we have yet to see significant movements in rates, and what we expect are slow, minimal increases over time. Only God knows the real answer.
As an investor, what are some options to consider in this environment? How should we invest? Three possibilities might be:
- Keep maturities short to wait and see where rates go before committing to longer terms. While you will probably end up with higher rates than are available for longer maturities right now, you will lose some income at lower-paying, short-term rates while you are waiting, especially if you have to wait a long time. Our staff can assist you in evaluating different scenarios to meet your goals.
- Invest now in longer-term maturities. You will be protected from possible up-and-down rate cycles and earn an overall, better return, but you will have to wait a while to participate in any market rate increases. There are options for you to consider such as your need for maintaining liquid funds or potential need to spend some of those funds.
- “Ladder” your maturities over a comfortable period of three to five years. You build a ladder by investing equal amounts in a range of maturities. For example, you could place $1,000 in each of one- through five-year maturity certificates. At the end of year one, you invest the maturing amount in a five-year certificate. If rates have been rising, the reinvested amount will be at a rate higher than it was on the five-year certificate when you started. If rates go down, the opposite would be true, but you would still have money in the higher rate two-to-five year certificates. We have a “ladder calculator’ to help you understand how best to meet your objectives with this approach.
What are the benefits to investing with the Development Company? Your investment generates a win-win for Methodists in Virginia. Here’s how:
- Win #1: All funds invested are loaned to Virginia United Methodist churches and ministries in need of financing for capital projects and construction programs. One of those recently approved is a church who will save more almost $7,000/month in re-financing their church mortgage.
- Win #2: Investors earn above-average interest rates when compared to similar instruments offered at other financial institutions.
- Win #3: Investors become missionally focused as the hands of Christ helping reach neighboring communities with the love of Christ through their investment.
The Virginia United Methodist Development Company, LLC, offers various products to help you save with stable, convenient vehicles for every age and situation, while providing both a financial return and a Kingdom Return on Investment (KROI). Call or email today and ask to speak with one of our staff and receive more information to meet your investment objectives. Thank you for your ongoing investments in advancing the Kingdom.
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