The downside of falling interest rates

With the US Federal Reserve expected to cut short-term interest rates in September, investors face some tricky choices. While falling rates are usually viewed as a boon for the stock market, that’s not the case for all parts of the investment universe. In fact, for money you may need soon, where safety is a major priority, falling interest rates aren’t great news at all.

Whenever short-term rate cuts start, the fabulous 5 per cent-plus money market yields of the last couple of years will begin to fall. Faced with the prospect of less lucrative payments from money market funds, Treasury bills, certificates of deposits and the like, you may be tempted to take on greater risks in longer-term bonds or stocks.