Understanding the Relationship Between All-Country Funds and Interest Rates: A Simple Introduction for Beginners

The All-Country World Equity Index (often called ‘Orkan’ in Japan) is an investment trust chosen by many because it allows you to ‘invest in the entire world with just this one fund.’
While it is considered the gold standard for long-term investing, many beginners feel it sounds complicated after hearing phrases like ‘it’s disadvantageous when interest rates rise’ or ‘there is interest rate risk.’

However, interest rate risk is by no means a difficult concept.
In this article, I will explain it in a way that you can understand intuitively, using as little technical jargon as possible.

Interest rates are the ‘rental fee for money’

What is an interest rate?
There is no need to overthink it.
An interest rate is like a rental fee you pay when you borrow money.

When you borrow money from a bank, you pay interest in addition to the principal.
The percentage of this interest is the interest rate.
The higher the interest rate, the harder it becomes to borrow money.

What happens in the world when interest rates rise?

When interest rates rise, it becomes harder for companies to borrow money.
This is because the burden of building new factories or investing in new businesses increases.
As a result, it becomes harder for companies to grow their profits.

Simply put, a stock price is the value placed on ‘how much profit this company is likely to make in the future.’
If it becomes harder for companies to make a profit, stock prices tend to fall.

In other words, interest rates rise → companies become less energetic → stock prices tend to fall is the flow.

All-Country funds are also affected by interest rates

Since an All-Country fund is an investment trust that collects stocks from all over the world, if the overall stock market falls, the net asset value of the All-Country fund will also fall.

In particular, All-Country funds contain many large U.S. corporations and IT companies.
Because these companies are expected to grow in the future, they are more susceptible to the effects of rising interest rates.

There is only one thing beginners need to remember here.

‘During periods when interest rates rise, the price of an All-Country fund may fall.’

That is enough to know.

Reasons to keep holding an All-Country fund anyway

You might feel anxious here, but please rest assured.
Interest rates do not rise forever.
In the real world, interest rates repeatedly rise and fall.

Also, an All-Country fund does not depend on a single country or company.
Because it is diversified across the globe, it is designed to be resistant to fatal damage from temporary interest rate hikes.

What is even more important is that in long-term investing, you can ‘buy more when prices are low’ point.
A phase where prices fall due to rising interest rates actually becomes an ally for accumulation investing.

Simple actions beginners should take

Faced with interest rate risk, there is not much for a beginner to think about.

・Do not force yourself to follow interest rate news
・Do not panic and sell even if prices fall
・Calmly continue your accumulation

Just following these three rules is enough.

Summary

Interest rate risk is merely ‘one of the causes for temporary price fluctuations.’
An All-Country fund is an investment product that smooths out those fluctuations over a long period of time.

There is no need to understand interest rates perfectly.

The world will grow slowly, and the All-Country fund will ride that growth.

If you can grasp this feeling, you are doing just fine as a beginner.