Oil moved above $70 a barrel in June, and regular unleaded is just under $3.00 at the pump. That’s about a 50% increase this year, and I can’t see a path to it going down much given the current Administration’s energy policies. But I also remember paying $5 per gallon in 2001 when I had a 66-mile commute each way.
Building materials have skyrocketed since winter’s Texas ice storms and prices keep going up. Residential real estate is selling above the asking price just days after listing in many areas of the country, while at the same time, department stores and malls are closing. As best I can interpret it in my “economics for dummies” verbiage, the Fed said something to the effect of Inflation is a bit higher than expected, although we think it is a temporary blip, but maybe not. Okay, I’m sure they would be offended as such a simplistic statement, but it’s an awful translation IMHO. You can read what they actually said here.
One thing that we can agree they did say was that looking forward, and they may have to raise rates twice in 2023. This is a year earlier than their prognostication made in March.
While we may agree to the wisdom “Don’t fight the Fed,” that still leaves us wondering what to do with our investments now.
Man, oh, man, there are lots of nuances to that question, aren’t there? We first have to decide how much relevance to our investment plan is due to social behavior, economic behavior, political posturing, actual legislation changes (think tax laws), mass investing behavior, and our society’s acceptance or rejection of the new normal in all these areas.
That breadth of thinking will make us crazy, paralyze us with fear, or send us rushing to likely irrational behavior. We revert to basics when things get too complex or confusing to process clearly.
Here is an example. When the nutty politicians, either left or right, come up with a fundamental change to our republic in the interest of offering a solution to a nonexistent problem, I reflect upon a sentence from the Declaration of Independence: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”
That, I remind myself, is the basic purpose of Government – to maintain those rights for the governed. All else is either detailed in support of fundamental rights or a subjugation thereof.
Don’t get too worked up.
I don’t expect you to agree with me or suddenly experience a here-to-fore elusive epiphany. This is my coping mechanism with a world gone nuts. I similarly use the Westminster Shorter Catechism for puzzles theological and Mom’s advice on public behavior: Be nice, wash your hands and face, if you can’t say something nice, don’t say anything, & keep your hands to yourself.
Simple sentences and short answers help me think more clearly, and perhaps more importantly, more calmly.
So what do you do when all the investment assets seem expensive? Disclaimer: Stocks, Bonds, Commodities, and Real Estate all seem costly to me in June of 2021, but that doesn’t mean all those assets won’t go higher in price over the next few months or years. It also doesn’t mean they won’t go lower in the same time frame either. It does mean market timing will make you and me nuts.
At the risk of sounding like a broken record, I go back to investment basics. I make sure my portfolio is balanced for my stated (i.e., written down somewhere) long-term risk profile. However, there is also a widely variable factor I don’t think I remind you of often enough – at least not in writing. I call it the “sleep at night factor.”
No matter how carefully we have planned, allocated resources, and balanced and rebalanced your investments, if worry over your finances keeps you awake at night (or giving you indigestion during the day), something is wrong with your plan.
Right now, I know investors that are (figuratively) stuffing some money into the mattress. If it helps them sleep at night, gives them more security in the shorter term (up to three to five years is my definition of the short term), and doesn’t break their long-term plans, I encourage them, and you, to do so. But be aware that money is not earning close to zero percent. It is earning a negative three or more percent due to the Inflation eating away your purchasing power. Cash reserves are for short-term needs, not long-term stability.
Do a quick exercise.
Think back to the price you paid for your first car, a gallon of gas, home, a loaf of bread and compare that to what you are paying today. You should expect at least the same increase in cost in the future.
And the cost of healthcare in the future? That will keep you up at night unless you have talked to your Financial Advisor and purchased an appropriate level of Long-Term Care insurance, right?
I understand, buying LTC insurance is much like regular dental checkups. Neither is enjoyable today, but they can make tomorrow much easier to navigate.
So be of good cheer and stop the worries. If the seas are choppy, stay the ultimate course, but reduce the speed a bit if it settles your stomach. Taking a little time for R&R in a favorite port isn’t a bad idea either.
The times we are in, they will pass.