Chris’ note: Last week, we learned that inflation is rising at an annual pace of 7.5%. That’s enough to cut the value of your cash savings in half in less than 10 years. So it’s crucial you act now to protect yourself.
That’s what you’ll hear from colleague Jeff Brown today. He’s our go-to expert on how to profit from bleeding-edge tech trends like gene editing, the metaverse, and non-fungible tokens (NFTs). But Jeff also knows how to handle the threat of inflation… and the increased volatility in stocks it’s brought with it.
That’s why he’s going live this Wednesday at 8 p.m. ET with a special briefing all about how to navigate these hard times as an investor. Make sure you’ve signed up for that here. Then read on below for five steps you can take right away to inflation-proof your wealth.
Washington has approved about $6 trillion in stimulus in response to the COVID-19 pandemic.
This has sparked the steepest rise in inflation since 1982.
The Consumer Price Index (CPI) is the government’s official inflation measure. Last Thursday, we learned it’s risen 7.5% over the past year.
In response, the Fed is threatening to raise interest rates.
This is shaking up the stock market.
Since its all-time high last December, the S&P 500 is down 8.5%.
And since its all-time high last November, the tech-heavy Nasdaq is down 14.2%.
Now, fears are swirling that Fed rate hikes will cause even steeper losses.
It’s a trying time… especially if you’re new to investing.
But set your worries aside…
Today, I’ll pass on five simple steps you can take to “inflation-proof” your portfolio.
But first, it’s important you know it’s unlikely that aggressive rate hikes will crash stocks.
One way the Fed can combat inflation is to raise interest rates.
This leads to higher rates on consumer loans and credit cards. And it slows down spending.
The Fed has hinted it will raise interest rates three or more times in 2022. This has been the main cause of the stock market pullback we’ve seen this year.
That’s because higher interest rates make holding relatively safe cash and bonds a more attractive option.
Higher rates also make it more expensive for companies to fund themselves with debt, which squeezes their profit margins.
But here’s what the mainstream is missing: The Fed is just testing the waters.
The midterm elections are coming up in November. And I don’t think the Fed will aggressively raise interest rates heading into those.
Doing so could cause the stock market to dive even further, which would be bad for the party in power. So the Fed will face a lot of pressure to not raise rates aggressively this year.
And that’s bullish for stocks.
This reminds me of the Fed-induced crash in the fourth quarter of 2018.
You may recall that the Fed raised rates seven times in 2017 and 2018. This ended with the S&P 500 plunging almost 20%.
Then the Fed reversed course and lowered interest rates three times in 2019… and the stock market went on a tear.
I expect something similar will happen this year.
You won’t hear this view much in the mainstream press. But I predict the Fed will raise interest rates no more than two times this year. And each hike will be by just one-quarter of a percentage point.
Then, the Fed will stay put through the midterm elections.
It’ll talk a big game about further rate hikes if the incoming data calls for it. But we won’t see any aggressive action until after the elections.
Keep in mind that the Fed would need to do a lot to have any real impact.
Its current key lending rate is 0.25%. If it hikes rates three times by one-quarter of a percentage point each time, its key lending rate will be 1%.
And with inflation rising at 7.5% annually… that’s still free money.
So I’m not worried the Fed will crash the stock market. But that still leaves us with the inflation problem.
Here’s how you can deal with that…
These are five steps you can take to grow and protect your wealth through this inflationary cycle, depending on your circumstances…
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Finance or refinance your home with a fixed 30-year loan at the lowest possible rate. Over time, you’ll pay back the loan with devalued dollars. And you’ll end up owning a home, which is a good way to protect against inflation. Like all other scarce assets, property tends to hold its value as the value of money falls.
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Finance any income-producing properties using fixed-interest loans. These could be rental properties or timberland. It’s the same logic as above. Land and property are scarce.
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Invest in bitcoin (BTC), another scarce asset. There can be only 21 million bitcoins in circulation. And each one costs money to digitally “mine.” Over time, this will cause the crypto to rise in value versus the dollar and other inflating fiat currencies.
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Digital assets backed by real assets, cash flows, dividends, or stocks could also be smart places to allocate capital.
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Collectibles are another interesting asset class. Artwork, rare wine, vintage cars, rare watches, coins, and other collectibles have historically been excellent stores of value. And the collectibles market is now racing into the digital age with NFTs. These could be another interesting avenue.
I know these are trying times. That’s why I’m hosting a special briefing on Wednesday.
I’ll tell you whether you should buy, hold, or sell your stocks.
I’ll also reveal my new 100x plan for profiting from a massive tech trend – including the name of one stock that could be an easy double this year.
So please join me on Wednesday, February 16, at 8 p.m. ET.
If you haven’t already, you can RSVP right here.
I hope to see you there!
Regards,
Jeff Brown
Editor, The Bleeding Edge