Interest Rates + Inflation: How To Run The Play
Inflation. Interest Rates. Jerome. The Feds.
All of these terms have been floating around over the last couple of months. The reason is because it’s becoming a big as* deal for us no matter if you’re an investor or consumer. Technically, you sorta fall into both groups. While for some, you might be one more so than other. Balance the scale as you may.
During this pandemic, we have seen some of the hardest situations for everyone known to mankind. Just like some folks took on debt, so did the Federal Reserves to help keep the checkbook of America balanced as possible. When The Federal Reserve Chair Jerome Powell said that they wanted to start the taper process, a lot of people did the head tilt. Which tapering is slowing the pace of the government purchasing certain assets. And for us, it is bonds. Which bonds are typically an IOU or debt. They have been grabbing them like Yezzys throughout the pandemic to help balance the stimulus rollouts, PPPs, etc. They also lowered the Federal Interest Rate legit 0%. Which it has been since about 2018 (or ZIRP).
[ Even tackled with this in a Reel]
Back in November 2021, they announced that beginning in March this year they will start easing that Federal Interest Rate from the 0% that we have been seeing to help offset (no Cardi) the debt that they pretty much have stacked up. It is expected that we could see 5-7 interest rate hikes through 2022. Yes, that maany. During the FOMC earlier this week - they announced the first of those 5-7. The first bump looks like to be 0.25% (bps – basis points) vs the 0.50% as the first reported. While starting that low is like a stress test, it’s some other factors driving the boat; one being Inflation. Inflation is now the highest and has risen the fastest we have seen in 40 years. I’m not even 40 year, Tuh. So take that for context.
[Check out my other article Inflation Implementation: How to Scale Your Paper + Portfolio]
The inflation and interest rate situation happening at the same time could be an interesting one to watch play out in real time. While there are some doom and gloom articles about this, I wanted to give some high level context around what you can to help counterbalance this situation. While this can be on a case-by-case basis, the foundation holds good ground to flourish and stay focused during the potential flames.
While I write my perspective within my 3A Framework, take this insight into account how it can keep you going and gaining during this situation:
Investors:
“It’s not about timing the market, but time IN the market” - Uncle Warren B said it best!
Audit: Peep at your holdings. Diversification is key and you hold it. You can turn on the positioning to see how things are performing or not. As we can see, there’s been a good bit of volatility during this season. And honestly, I don’t see it going away anytime soon. Many are starting to look into DeFi/Crypt due to the returns that they see within this space. Look to see how this can play within your portfolio.
Align: Banks, Insurance Companies, REITs, DeFi, FinTech and similar sectors that are triggered by consumer loans might see an uptick. These will be areas to research. Which on the other hand, could impact those companies that deeply depend on spending (the next couple of months will be very telling).
Accumulate: Most investors are heavy on the dividend stock. Which I get, but look to leverage your diversification with funds/ stocks/crypto that gives you capital gains. Why? Earnings could become a mixed bag throughout this year. But don’t let volatility make you miss the value. Don’t go unloading stock because the markets look red. HODL isn’t just for Crypto, you know?!
Also - I do expect with every bump of the interest rate that we can expect some sort of market reaction. It might not be the day of the FOMC meeting, but it might be days to follow. This is building your Portfolio Stamina - you learn to swim in stronger currents. This is a example of this. What’s one thing I will say - don’t be so quick to unload stock just because you see the markets red, “Plan It, Don’t Panic”. Meaning, plan your portfolio BEFORE the volatility gets to be a bit much to know what’s in your portfolio along with what might help your portfolio perform better. Find value in the volatility.
Consumers:
“Yesterday's Price is NOT Today’s Price” - Fat Joe
Audit: Look within your accounts that hold interest (car loans, mortgage loans, credit card, etc).. Check to see if you can either lower or refinance the loan for a better rate. This will help you as the Federal Interest Rate moves up throughout the year. While the payment might be the same, more of your payments will go towards your interest vs your principal.
Align: Try to snatch any debt that you have right now before the uptick ticks up even more. One of the new platforms I’ve been seeing outside of UnDebt.It is Tally. The cost of Consumer Goods and things like houses, cars are going up. Doing this will help you if this is a goal for you!
Accumulate: HYSA (High Yield Savings Accounts) and CDs (Marcus by Goldman Sachs is one of my favs) could gradually see a bump in interest rates, which will increase how much you save year over year. Plus look for ways to start earning more or leveraging income streams (not necessarily multiple jobs).
Either way as the Interest Rate and Inflation Soap Opera goes on this year, look for a way to CYA (cover your as*).
Dassit.