Interest rate fluctuations are closely related to economic activities and investment performance, and are one of the risk factors in investing. Therefore, retirees should pay close attention to interest rate fluctuations.

Interest rate hikes in the United States may affect our investments. Starting in March 2022, the Federal Reserve of the United States has begun a cycle of interest rate rises that will have an influence on both personal lending and investment.

The most profound impact for retirees is that many Hong Kong banks have raised the interest rates of the Hong Kong dollar and certain foreign currency time deposits, enticing many investors, especially those with a lower risk tolerance, to turn to time deposits. Besides, the returns of some retirement financial instruments have also increased, making them even more appealing. For example, the guaranteed interest rate for the new tranche of silver bonds issued in mid-2023 was adjusted to 5% from 4% offered by the previous tranche.

Investors should understand that interest rate movements can be favourable or unfavourable to the stock market. In general, higher interest rates are unfavourable to companies with high debt levels or financing needs. On the other hand, there are many stocks, including traditional dividend stocks, that offer a dividend yield of over 5%. However, investors should be aware that a high dividend yield does not necessarily translate into a high dividend payout as it can be caused by a drop in the stock price. Investors should never make the investment decisions solely based on the dividend yield.

Interest rate fluctuations are expected to impact investor sentiment and market volatility in the future. It is important for investors to adhere to the fundamental investment principles, including diversification and avoiding short-term speculative trading, while monitoring the changes in interest rates closely.