Surviving the Stagflationary Storm
To survive a threatening winter storm above tree-line, mountaineers must think, stay hydrated and fueled, keep the core temperature stable, avoid injury, and chart a course to expediently descend the mountain. The storm doesn’t care what a great climber you are; the neglect of any of these things may get you killed. Execution is all that matters. The ongoing stagflationary storm is punishing asset prices, devouring incomes, and threatening the economy with recession; it is equally hazardous! The 1967 “deadliest ever” storm on Denali lasted over a week and claimed seven lives of a party of twelve experienced mountaineers. Astonishingly, five starved or froze cowering in a snow cave or tent. Consider the following actions to survive what may eventually be renamed, “The Great Stagflation of the 2020’s”:
Maintain a net positive cash flow by working hard, by improving earning potential with increased specialization in your field, and with the strictest budgeting of your life.
Dollar cost average into long-term investment accounts throughout the market cycle, at minimum until the next bull market is underway.
Minimize inflationary damage to cash savings by seeking a higher fixed interest rate in alternative products. Abandon the ‘bank only’ bias that feasts on the purchasing power of your savings.
Beware the risk to low quality and long duration bonds from both rising interest rates and a weakening economy. Understand your exposure to the bond bubble, particularly with target date, balanced, and asset allocation ETF’s and mutual funds.
Think outside your normal box to find high quality investments with significant, present income streams, especially those able to pass price increases on to consumers.
Beware the inflationary risk to all growth stocks, as they promise a future dividend already being consumed by inflation. If you own them, take a long-term approach and toughen up.
Understand the investing environment has changed. “Buy the dip” growth investors have been taken to the woodshed, and “Don’t fight the Fed” realists are surviving. The Fed is in full panic mode and is not likely to revert to the printing press, its primary trick, until there is significantly more pain in the stock market and economy.
Build portfolio cash to take advantage of low stock multiples when the Fed does try to cure the pain with the very thing that caused it, a near certainty in due course.
Think about it, Shaun.
“The Fed, in the disposition of its experimental policies, performs as both arsonist and firefighter” ~Jim Grant
“Inflation is taxation without legislation.” ~Milton Friedman
The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.
All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price.
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