Inflation and interest rates.
They’ve been in the news quite a bit lately, and with good reason. Both have a profound effect on our everyday lives. We cannot help but feel inflation’s sting every time we buy groceries or fill our gas tanks. And even those seemingly trivial items we once purchased online without batting an eye cause us to think twice before hitting the “Buy Now” button.
Inflation seems particularly scary when you’re on a fixed income — even if you feel that you’ve planned adequately for your retirement. Where we once experienced ~3% inflation — and sometimes even less than that, we’re seeing numbers higher than we’re used to. At the time of this presentation, in the fall of 2022, we were in the neighborhood of 8%. So, it’s logical for us to wonder just how much longer high inflation will continue to put a crimp in our spending power.
In its effort to curb inflation, the Fed has raised interest rates several times, which are now higher than they’ve been in quite a while. And even though they’re still not all that catastrophic from a historical perspective, this has also changed the financial landscape. It’s now more expensive to buy a home or borrow money, for example — the latter of which is a major concern for consumers and corporations alike.
If you’re like most investors and you’re wondering how best to refine your investment strategy to accommodate these changing conditions, we’ve got you covered. Richard and Angela recently collaborated with the Rossmoor Financial Forum to give an illuminating presentation on how we can all learn to ride the wave of our current financial situation – because it will happen again!
The Rossmoor Financial Forum is a diverse group seeking clarity and understanding in the world of finance. They aim to provide their members with the education and tools necessary to make informed decisions regarding their portfolios. They also work to expand their financial literacy ranging from local to international issues.
In their presentation, Richard and Angela will talk about:
- The real cause of inflation, and why the events of the past three years made inflation pretty much inevitable.
- Why the Fed’s primary tool for combating inflation is usually so effective, and what the Fed’s target number for inflation is for the future?
- Our history with recessions, what differentiates them from depressions, and why we’re so much better prepared to deal with recessions than we once were.
- Why investing based on gut instinct is the exact opposite of what you should do if you want to be successful.
- What moves should investors make in our present inflationary economy?
And more!
We hope you’ll see things aren’t necessarily as ominous as they seem. Yes, interest rates may appear high, but they’ve been much higher on many occasions. And while recessions can’t help but evoke some concern, they aren’t the cataclysmic events the media portrays them to be. So, it’s time to put knowledge on your side to quell those concerns and learn how best to set yourself up for success regardless of what the economy is doing.
P.S. Looking to meet with Richard or Angela at our office in Alamo, CA? Want to discuss more of what you heard in this episode? Wondering where the heck you need to get started or what all of this means for your retirement plans? Schedule a free 30-minute session and find the peace of mind you deserve for the rest of your life. You can also reach us by calling 925.736.6410 or sending an email to Info@APlaceOfPossibility.com.
“The reality is that a recession encompasses a lot more – like loss of jobs and loss of corporate profits. But we’ve got some good news. Unemployment is still at an all-time low — we’ve got two jobs for every one worker. And, corporate profits are holding up much better than expected. Of course, you wouldn’t expect this if you listened to the media.”
A Glance at this Episode:
0:00 Introduction
3:39 Let’s start with inflation. So, to get a better perspective, we’re going to look back at the historical inflation rates and surprisingly enough, it’s not the worst we’ve seen.
5:31 An imbalance in supply and demand is the core cause of inflation. In our case, the government pumped trillions into the economy through stimulus and unemployment benefits, and there are not enough places to spend it.
7:37 So, what is the Fed doing to combat inflation? Their “go-to” move is to raise interest rates, which has historically been effective.
8:34 While it may seem we’ll be stuck with runaway inflation, it should drop fairly soon.
9:28 There are two major distinctions separate recessions from depressions. First, a recession is a shallower drop in economic growth for a shorter period of time versus much deeper losses over a long period of time.
10:09 Before the 20th century, the economy was much more sensitive to disruption, which led to the founding of our National Bank to make future financial disruptions more manageable.
11:29 Did you know? The stock market usually recovers around six months before the economy recovers, so it’s a leading indicator.
12:20 Are recessions really as cataclysmic as the media portrays them? NO! They make it sound like the end of the world. It’s not.
15:30 These realities about our current economy should provide some optimism for investors.
17:20 News flash! We know recessions are coming because they are a natural part of the economic cycle. Ignoring them is just like putting your head in the sand. So, let’s discuss strategies to help you withstand and BENEFIT from inflationary periods.
19:50 A diversified portfolio helps shield you from catastrophic losses, such as this example from a client with ENRON.
22:02 Maintaining a proper balance of equities in your portfolio will help you keep pace with inflation. We recommend holding between 40-70%, no more or less.
23:10 Want to feel more confident about your investments? Then turn off the financial news.
25:00 Don’t sell stock out of emotion! It’s easy to get out, but how do you know when to get back in?
26:36 Pro Tip: Buy stocks when the market is down. It’s like they’re on sale! But it also keeps your portfolio balanced.
27:29 Your stocks are not going to zero. That would mean the fall of capitalism.
28:30 Want to save money come tax time and keep your portfolio solid? Harvest your losses.
29:48 It’s easier said than done, but do the opposite of what your gut tells you. This primary financial rule may be the most important and help you make money!
31:48 Did you know that consumer confidence is what’s really driving the economy? Not politics!
33:47 Financial markets factor in future expectations, and what the markets DON’T like is being surprised.
36:35 The average investor does so poorly because, once again, he relies on his EMOTIONS! Stop reacting and play the long game.
38:26 If you were invested from 2006-2021, even with two big recessions, your investments would’ve averaged a 10.6% return annually. That’s huge!
39:23 Looking for opportunities in today’s economy? Treasuries are yielding more than 4% return.
41:48 Given their greater inherent risk, you’d think corporate bonds would pay more than treasury bonds. But do they?
42:11 The I-Bond is a specialized type of bond that is a good hedge against inflation, but its features are sometimes misunderstood.
43:20 American ingenuity is a pivotal driver of a capitalist economy and makes corporations more resilient during downtimes.
45:21 Don’t stay out of the real estate market because of rising interest rates. We’ve run the math. It makes more sense to buy a property at a lower price with a higher interest rate because you can refinance later!
47:08 Silver and gold, the long-standing hedges against inflation, are riskier than you might realize because they are volatile.
48:10 Think high inflation will continue? Then you could consider investing in commodities, but no more than 3%.
49:57 Owning companies that make staple consumer goods tend to perform better over the long haul because they are stable and profitable.
52:05 We’ve got great news for those who receive social security, your checks are going up 8.7% in 2023, woo!
52:33 Did you know? Medicare Part B is going down in 2023. It’s only by a few dollars, but still, that’s a win!
56:07 Have to take the required minimum distributions from your retirement account but don’t need the money to live on? Here’s what many investors do instead.
59:22 Richard and Angela share some more insights on other fixed income options besides treasuries.
Interested in having Richard or Angela speak at your next event or webinar? Send us a message by emailing Info@APlaceOfPossibility.com and we’ll reach out to you to discuss your needs, or feel free to call us at 925.736.6410.
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Links/Resources Mentioned in this Episode:
- If you’d like to know more about DMG’s approach to investing, we encourage you to download a copy of The Investment Answer, which we now have available as an Ebook. It’s a very easy read — you can probably get through the entire Ebook in just one evening — but it has the potential to revolutionize your relationship to investing and help you avoid many, if not all of the mistakes you may be making without even knowing it. To get your copy, go to https://APlaceofPossibility.com/DMGInvestmentAnswerEbook.
- Want to make some extra FREE money on the cash you have in your savings account? Try an online bank like Ally that has a good rate of return! Find out more by visiting Ally.com.
- A Place of Possibility Episode 032: Top Financial Strategies That Seem Illegal But Aren’t
- A Place of Possibility Episode 028: What to Know When Picking Your Medicare Plan
- A Place of Possibility Episode 25: How to Improve Your Investment Returns and Lower Your Tax Bill with Tax Loss Harvesting
- A Place of Possibility Episode 21: Recessions 101: History, Indicators, Planning, and More
- Ensure your family’s wealth will live on for generations to come. Order your copy of Endless Inheritance by Richard Del Monte today! https://aplaceofpossibility.com/endlessinheritance
- Ready to become a better investor? We’ve got the strategies you need. Download a FREE copy of our e-book, “Evidence-Based Investment Insights.” https://mailchi.mp/aplaceofpossibility/dmgevidencedbasedinsights
- Del Monte Group offers a variety of free resources to help you make innovative and educated financial decisions so that you can keep, grow, and enjoy your wealth starting now. Find them by visiting https://aplaceofpossibility.com/resources
“One-size-fits-all” won’t fit you here! The Del Monte Group team understands that everyone’s financial goals are unique. That’s why we always provide customized advice. No matter where you are in life, you can depend on our proven expertise to provide financial planning support for long-term success. Ready to get started? Schedule a meeting with Richard or Angela in our Alamo, CA based office today or we can meet via Zoom! >> You can select a date and time that works for you via our calendar, call us at 925.736.6410, or send an email to Info@APlaceOfPossibility.com. We can’t wait to help you!
