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The Frugal Investor
Anchor Bay Capital's monthly eNewsletter
Higher interest rates to come
Higher interest rates are coming. That seems to be the message from the Federal Reserve last week when it increased the discount rate, the rate it charges banks for overnight loans. The move caught many economists by surprise but it wasn’t completely unsurprising; given it was a healthy step toward more normal conditions amid a sign the banking system is healing.
I don’t believe the move signals any imminent rise in the more important federal-funds rate; however it’s a clear warning that near-zero interest rates won’t last forever.
With short-term rates near zero, and even longer term rates the lowest they’ve been in my lifetime, interest rates really couldn’t go much lower. The tightening cycle has begun.
This has significant implications for investors, since markets anticipate events. I’m assuming we are in the very early stages of credit-tightening, so investors need a whole new strategy for a world of rising interest rates.
Inflation:
Rock-bottom interest rates have had many worrying that high inflation will be the inevitable result. This has fueled a surge in prices for assets that are perceived to be hedges against inflation. Watch for a leveling off or decline in the prices of inflation hedges: gold (remember my previous article about the high price of gold), most of all; other commodities, especially metals; and Treasury inflation-protected securities, or TIPS.
Investors should rebalance now, if they haven’t already, and gradually reduce their commitment to inflation hedges over the next year. This doesn’t mean long-term investors should abandon all inflation hedges. They still belong in every portfolio. However, you should not overweight them.
Sincerely,
Scott Spiering
Principal
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Spring Cleaning for Your Paperwork
It is spring cleaning time, time to scrub up and open the house to get rid of winter's gloom. While you are cleaning, don't forget to give your personal papers a going-over, too.
Your first step, if you have not already done so, is to gather all your personal papers together in safe place, like a filing cabinet or storage boxes in a closet. You probably should use a safe or safe-deposit box to store some things, like your will, the deed to your house, the title to your car, citizenship or naturalization papers, etc. But keep copies of these documents at home with other personal papers, such as canceled checks and bank statements, copies of your tax returns, insurance coverage information, receipts and warranty information on major purchases, etc.
Put this paperwork in clearly marked file folders or binders. Then go through these files at least once a year. Update them with new information where applicable, and remove and shred outdated information. Finally, make sure you tell a trusted friend or family member where to find these papers, in case something happens to you.
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