Your Investment Account Will Continue to Grow After the Fed Rate Cut

What does the Fed’s 0.50% interest rate cut mean for the stock market? On the one hand, no one knows for sure. Stocks go up and down for complex reasons. There is no guarantee that a Federal Reserve interest rate cut, or several rate cuts in 2024 and 2025, will cause stock prices to rise.

However, if you are a long-term investor, your stock portfolio will likely continue to appreciate even after the Federal Reserve cuts interest rates. Because stocks usually rise over the long term. The S&P 500 Index has grown at a compound annual growth rate of 10.7% over the past 30 years.

Let’s take a look at some reasons why a period of Federal Reserve interest rate cuts could be a good time to continue to fund your investment accounts.

The stock market (usually) rises.

Is now a good time to invest in the stock market, or is the Fed’s rate cut a sign that the economy is weakening? I don’t know the answer to that question. No one knows for sure. However, if you look at the history of the stock market, long-term investors There is rarely a “bad time” to buy stocks.

Financial advisor Ben Carlson has created a chart on his blog that shows how the S&P 500 index rises over the years. Yes. The stock market may decline on any given day, month, or year. For example, the S&P 500 index has lost about 19% of its value in 2022. If you invested $1,000 in the S&P 500 at the start of 2022, those stocks would be worth just $810 by the end of the year.

But the stock market bounced back, rising about 24% by the end of 2023 and an additional 20% as of September 20, 2024. On January 1, 2022, $1,000 invested in the S&P 500 Index will be worth approximately $1,200. today. Even a bad year for stocks is not a “bad time” to buy stocks. If you invest for the long term.

Stick to your financial plan.

Don’t try to “time the market.” Some investors may be anxious, wondering whether now is a bad time to buy stocks or whether the Fed’s interest rate cut is a sign that the economy is about to fall into recession. It’s true that the job market could weaken, American consumers could cut off their credit cards and stop spending, and the economy could slump and stock prices could fall with them.

However, it is possible that the stock market will continue to rise in 2025. The U.S. economy can experience higher levels of growth thanks to lower interest rates.

Lower borrowing costs allow consumers to spend more. Businesses are more likely to invest in growth, such as hiring more people, purchasing more equipment, and creating more opportunities. All of this is good news for the stock market, and it’s also good news for your 401(k), IRA, or brokerage account.

conclusion

No one knows what will happen to the stock market tomorrow, next month, or in the next few years. Interest rate cuts may coincide with stock market gains or losses. Past performance is no guarantee of future results.

But in general, if you’re investing for retirement or other long-term goals, you shouldn’t be afraid to continue buying stocks as part of your overall financial plan. The Fed’s interest rate cuts and lower interest rates could be good news for your investment accounts in the long term, and even in the short term.