I believe the Fed will be increasing interest rates much more than is being publicly telegraphed. Perhaps seven, or more, rate hikes at 1/4% each or perhaps four at 1/2% each! In addition, when the Fed starts reducing their balance sheet by a few trillion, we could see even more volatility. The Fed has suggested this could start any time after March 2022.
In the early 1980's I termed the phrase "The Real Return Illusion", meaning bond investors loved getting 15% on their bonds, but the illusion was their real return was negative after accounting for inflation! Just like now.
Only when Paul Volker increased interest rates to nearly 20% did the Fed break inflation.
Historically market valuations of Corporate America are a fine inflation hedge as input cost increases are simply passed onto to us at your household level. You are monetarily affected, but the majority of Corporate America is not.
Also, I have looked back over decades of data, and written extensively in the 7 Signs and The WSG Weekly Updates about the interest rate increases of past. I found no periods of time when the fed was increasing interest rates that market values dropped more than "normal". Instead, it is when the fed stopped increasing interest rates that the sushi hits the fan! Why? Because at the interest rate increase “stop point” the Fed has told the world the economy is now going to contract, without saying one word.
That is the "Oh $**t" moment that I am planning to be ahead of as I monitor your assets entrusted to my oversight! I remain very focused here!
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As always, our team and I are available to discuss this concept with you. Just call, email or stop by the office and say “Hi”!
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing involves risk. Loss, including loss of principal, may occur. No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.