Evan Lucas on the RBAs latest rate rise

Today the RBA increased interest rates by a further 0.25%, taking the cash rate to 3.35%.

One line in the RBAs announcement today stood out, with the RBA acknowledging the lag between interest rate rises and the slowing down of the economy and bringing inflation back to an acceptable level. From the RBA announcement:

"The Board recognises that monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments. There is uncertainty around the timing and extent of the expected slowdown in household spending. Some households have substantial savings buffers, but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living."

For InvestSMART investors, this means it remains crucial you focus on your diversification and investment timeframe. We say this because we don't know the extent of the volatility, but we do know that a well-diversified portfolio, with your eyes on the horizon, is the way through it. Jumping in and out of investments continues to be a surefire way to lock in losses, not grow your wealth.

By jumping in and out, you miss out on dividends and have to make the difficult decision of "when do I get back in?"  We find people are terrible at this last question and are more likely to return when markets are higher than when they exited, not lower.

Stick with your investment plan and reach out to the team if you want to have a chat. We're happy to help.

Evan Lucas is the Portfolio Manager for the InvestSMART Diversified Portfolios.