Where to invest when interest rates are falling

The Bank of England has recently cut base interest rates for the first time in over four years, and while we’re not expecting them to tumble all the way back down anytime soon, this could be a good time to rethink your investment game.

So, let’s dive into how these changes might impact your portfolio and where you might find the hidden gems in a shifting market.

Stock markets

When interest rates drop, stock markets generally get a little spring in their step. That’s because holding cash becomes less attractive, and people are more likely to get back into investing. While high rates have been giving savers decent returns, those rates are starting to head south, and when more people jump in to investing, it tends to push stock prices up. 

But, as always, some stocks could do better than others in this situation. Let’s have a look at some examples.

Consumer confidence

Companies that depend on consumer spending could enjoy a nice boost. As interest rates fall and inflation cools, people might feel like they’ve got a bit more cash to play with. This is generally good news for retailers, housebuilders, and DIY brands—especially those that are UK-based. 

Think about all the potential big purchases that have been on hold, like new sofas or kitchen renovations—this might be their time to shine as consumers feel more confident. 

Housebuilders and property developers in particular, could see a boom, with lower rates making mortgages more affordable and the government setting its sights on building more homes.

Bonds

If you thought bonds were dull, think again! When interest rates fall, bond prices tend to rise, and the interest they pay becomes more attractive. 

While the returns might not be as high going forward, there's a solid chance to make some gains if you decide to sell. So, bonds might be worth a second look.

Gold

And let’s not forget about gold—the OG investment safe haven. When interest rates rise and cash becomes king, gold loses a bit of its sparkle. But as rates start to fall, gold could shine through once again.

A weaker US dollar, which often comes with rate cuts in the States, can also give gold a boost. It’s a classic move, but one worth considering as part of a balanced portfolio.

Luckily for you, investing in gold with Dodl is simple—just check out our themed investment, ‘Going for gold’!

To wrap up…

Now, not everyone is popping champagne over rate cuts, but with rates heading down and markets shifting gears, it’s a good time to assess your investments. Whether you’re eyeing consumer stocks, bonds, or even a little glint of gold, there are plenty of ways to take advantage of a falling interest rate environment. 

 

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🔔 The value of your investments can go down as well as up. Dodl doesn’t give advice, so if you’re unsure about investing, it’s always best to speak to a financial adviser.