The latest March CPI report shows inflation increasing by 0.1%, up 5% from a year ago. In response, the Dow Jones Industrial index spiked 300 points as the Fed weighs its next policy move.
Investors are struggling to make sense of the latest data points on the economy.
Most see raising the rate as a way to tame high inflation. However, higher rates mean a possible recession with jobs being lost, less money in people's pockets, and an opportunity to take advantage of lower prices in the stock market.
According to a CNBC report, energy and food costs have decreased, but shelter prices have been the largest inflationary unit within the economy. With higher rates, mortgages will be more expensive for those buying homes, and therefore many banks will have a more challenging time trying to sell these mortgages.
Even seasoned traders are having a hard time making sense of current market conditions.
However, beyond the current confusion, patient investors can forge a path that generates better returns over the long term. This article will consider some foolproof methods for starting an investment portfolio through investing in various different asset classes and how they fit into a broader long-term investment plan.
It is hard to tell what the Fed may do. Many economists are asking the Fed to pause their rate hikes amid a string of bank collapses, with many more banks looking unstable.
The U.S. economy could be heading into a recession with bank failures on the rise, tech companies having to cut salaries and employees, and many people starting to pull their money out and hide it under a mattress. Investors need a plan to get through the turbulence ahead.
An Investment Plan
Many are anxious about the future of the economy. With the collapse of SVB, ripple effects may affect the technology sector for years to come. So how do retail investors fight this uneasiness of the current market?
One way is to create an effective investment plan for your future. It is hard to know how the wind will blow with the Fed. The inflation numbers suggest that the Fed will raise rates by another 25 basis points, but it is hard to gauge with the current bank failures.
It would be best if you thought about where your money is located. It could be in CDs, bonds, stocks, your house, or cold cash. What type of liabilities may you hold, such as loans and mortgages?
To make an effective plan, you must first know where you are to navigate where you want to go effectively. Inflation has been eroding the value of the dollar. That means we must save more and invest more money because what we could buy for a dollar a couple of years ago now costs $2 or $3.
Which Investments Perform Well in High Inflation
Different market cycles will deliver divergent investment results. Some assets may do well during times of rising costs, but not all will outpace inflation. It is always best to diversify.
Most people are looking for investments not tethered to the current market downturn, typically something away from the S&P 500. Value stocks could be a place to invest in. SCHD, one of the best ETFs, has a high dividend growth portfolio built from valued companies. In 2022, it had only mild losses of -3.2%, which beat the S&P 500, which had a return of -18.2%.
Another investment could be Treasury Inflation Protected Securities (TIPS). These are loans to the U.S. government. When they need money, they sell Treasury bonds to help pay for things. Right now, a four-month U.S. Treasury bill is sitting at a little over 5%. For the short term, you can find safety in Treasury bills as inflation continues to eat away at our money.
Gold and other precious metals serve as other alternatives to the stock market. Gold is one of the oldest commodities in the world, and it still is an excellent hedge in times of high market volatility. History testifies to the enduring value of gold, and governments today continue to hold gold as a valuable commodity.
You can look at some emerging markets as well. As China and many other countries start to recover in the post-COVID era, there are more opportunities to invest in these emerging markets. These emerging markets do come as a riskier move at this time, but when the market rises, it can add outsized value to your portfolio.
A little inflation is considered a good thing for a healthy economy. Prices gradually increase, incentivizing people to earn more and companies to innovate more.
With high inflation, economies start to shrink as people get scared and become more conservative with money. As these times come, investors can be wracked by anxiety, yet there are strategies to help ride the wave. Take advantage of the opportunities that are out there and follow through with an investment plan. Times like these will come to an end, but being prepared can help grow your wealth.
This post was produced by Top Dollar and syndicated by Wealth of Geeks.
source https://wealthofgeeks.com/investing-mindset/
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