What might you want to be considering now with elections behind us, the potential of new vaccines and a new administration coming to The White House? Whether you are investing for the near, intermediate or long-term, logistics, more than a strategy, can be critical to achieving your goals. Strategy is recognized as a plan to achieve the objective. Logistics by contrast is more about the details and the implementation of the plan or the strategy. Logistics usually means consistency and discipline. A few investors this year, in the face of such uncertainty, chose to exit the market or abandon their strategy. That is understandable as comfort level and the ability to sleep at night are so important.
Some made that decision as the market dropped rapidly back in March and others just prior to the election. Staying in, not getting out, is typically what has led to the attainment of long-term goals. What follows are some thoughts for investors to consider if they choose to remain invested.
First, consider the significant rise in the money supply. The supply of money, from the input of new dollars in the financial system (monetary stimulus from the Fed), has risen more than 25% so far this year. That, in turn, has pushed up asset prices from stocks to bonds to real estate, raw materials, building materials and so on. Also, consider the fiscal stimulus; that, too, is more money being injected into the system. Add to this the term, “velocity of money.” That is the rate at which money is exchanged from goods to goods or to service. That continues to increase.
Second, consider the consistent rise in consumer spending and the rise in durable goods orders, and yet, overall debt is lower that before the pandemic began. Short-term variations remain as investors reacted to election and ongoing pandemic concerns. Certain sectors of the economy have done better (technology, discretionary to name a couple) and others have suffered (travel, leisure and hospitality as examples). As savings rates increase, there is a potential for even greater consumption not only now, but if and when the economy is more open. Once again, note that this is in addition to the rise in the money supply.
Third, these two together could have impact on price inflation – the cost of goods and services. An increased money supply, coupled with low and stagnant interest rates and greater velocity, could be spelling upward pressure on the costs of goods and services in the economy. In times past this might be followed by the tightening of the money supply and higher interest rates. However, take note that the Federal Reserve has indicated that its current policy is to not tighten the money supply or increase interest rates. With the flow of money and static interest rates, that could impact asset prices. Note the increases in building materials (lumber prices up 80% since April) and housing prices as two examples.
Investors may wonder what, in the interest of diversification, risk efficiency, should they consider. They might want to look into inflation hedged assets. Two examples are TIPS (Treasury Inflation Protected Securities) and precious metals. These two alone do not form a plan, but are part of the logistics for the plan. TIPS are for investors who anticipate higher prices (inflation) as are investments in precious metals. TIPS are designed to appreciate with the rate of inflation. These days, there are so many choices, both more liquid and less costly, by way of Exchange Traded Funds which allow investors to buy a portfolio of TIPS or gold bullion or silver bullion. TIPS would be part of the fixed income or conservative parts of the logistics. Gold and silver bullion funds are considered alternative assets (vs. stocks, bonds, cash or real estate). Once again, these are inflation hedges and investors might want to consider learning more about these as they look at their goals and their plans. Real estate, and of course stocks, also can play a part in the logistics for investors.
So, with regards to stocks, what might investors want to investigate further? Growth-oriented stocks (technology as an example) have outperformed value oriented stocks (banks, energy, industrials as examples) for quite some time. A smaller number of growth oriented stocks make up a significant weighting of the S&P 500 as well as the NASDAQ. Many are wondering if this environment means a rotation from growth to value and that it becomes a long-term trend. There are many choices available today through mutual funds or individual stock selection for adding value-oriented securities to a portfolio.
Diversification by asset class (and within an asset class) is seen as a component in the logistics for investors. Value-oriented stocks have tended to outperform growth stocks in times of higher inflation. There are even programs out there which rotate between asset classes and sub asset classes with a disciplined and researched approach.
Finally, and as always, when you work on your logistics, it is suggested that you collaborate with your advisors or do your own in-depth research in order to have your plan implemented and for it to evolve as needed.
Maurice Stouse is a financial advisor and the branch manager of The First Wealth Management and Raymond James. He resides in Grayton Beach and has been in financial services for over 33 years. His main office is located at First Florida Bank, a division of the First, A National Banking Association, 2000 98 Palms Blvd, Destin, FL 32541. Branch offices in Niceville, Mary Esther, Miramar Beach, Freeport and Panama City, Pensacola, Tallahassee and Moultrie, Ga.; Phone 850.654.8124. Raymond James advisors do not offer tax advice. Please see your tax professionals. Email: Maurice.email@example.com. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC, and are not insured by bank insurance, the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank, and are subject to risks, including the possible loss of principal. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. The First Wealth Management First Florida Bank, and The First, A National Banking Association are not registered broker/dealers and are independent of Raymond James Financial Services. Views expressed are the current opinion of the author, not necessarily those of RJFS or Raymond James, and are subject to change without notice. Information provided is general in nature and is not a complete statement of all information necessary for making an investment decision and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results.
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Investors should consult their investment professional prior to making an investment decision. Please note, changes in tax law may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we do not provide advice on tax matters. You should discuss tax or legal matters with the appropriate professional.