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Proprietary Data Insights Financial Pros Top Stock Searches This Month
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Cash Is Never Trash Inflation be damned. Cash is always king. Don’t call it trash. You’re not a victim of decreased purchasing power as a consumer. And you can actually use the impacts of inflation as a positive if you’re an investor. Here are some quick ideas on how. For Consumers Consumers can protect their purchasing power by making decisions that counter inflation, such as selling a car they don’t need for a record price. An alternative: Drive less. And maybe not as aggressively. The EPA estimates that speeding and rapid acceleration and braking can reduce your miles per gallon by about 15% to 30% on the freeway and 10% to 40% in stop-and-go situations. For Investors Hasty decisions to beat the inflation rate of the day can burn you. It’s akin to chasing yield on weak dividend stocks. Remember, we’re living through what will be little more than a rearview mirror moment in time, particularly if you’re a long-term investor. You can’t take advantage of opportunities in the stock market if you don’t have cash on hand. While your purchasing power might be (temporarily) depressed, you can beat back inflation by using cash to purchase stocks beaten down in this uncertain environment. By not paying a premium like you do on products and services. Cash can feel like king when you scoop up discounted shares of a company that’ll still be around – and thriving – when everything blows over. For example, we featured Facebook in Wednesday’s issue of The Spill. Down nearly 30% year-to-date, buying FB at around $233 can make your investing cash go further if and when the stock moves back towards its all-time high of $384.33. That’s our kind of inflation beater. |
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Investing In The Broad Market |
The Worst Investment Advice You’ll Ever Hear |
Key Takeaways:
A few years ago, I was talking to friends outside a coffee shop in Santa Monica. This guy asked the group if they thought he should use a chunk of his savings to pay off his mortgage. One person responded with the worst money advice of all-time. Take out a home equity loan and invest the proceeds in the stock market. I thought that’d be the last time I heard such insanity. I was wrong. Just this weekend, I read two articles floating similar drivel. One suggested a homeowner had “too much equity” in their house and ought to leverage it to invest in the stock market. The other – from a reputable investment research and management company – discussed how to use home equity to make up for a retirement shortfall. There’s No Such Thing As Good Debt (Mostly) There’s reality. Then there’s recklessness. No doubt, if you’re fighting to survive in retirement, you have to do something. However, taking out a loan against your home should be a last resort. While it might be the only route for some people, it’s an idea so-called money experts should resist planting in the larger population’s mind. Debt is debt. And most of it is bad. At least for individuals. For businesses it works a little differently. Granted, a majority of us can’t pay cash to buy a house. Even with rising interest rates, you probably have no choice but to take out a mortgage to finance a home purchase. But to take out a loan on top of that loan and try to earn a higher return in the market – that’s simply reckless and a sign we’ve become overconfident in this persistently frothy stock market. Don’t Be Reckless. Go Back To Basics. If you have the luxury to pay off debt, particularly your mortgage, it’s something to strongly consider. Living life without what’s most likely your biggest monthly payment sounds amazing. You can take whatever you were paying each and keep it simple. Consider setting up a monthly investment in the broad market. Maybe the SPDR S&P 500 ETF Trust (SPY) or the Invesco QQQ ETF (QQQ), which tracks the Nasdaq-100. Both ETFs pay dividends. This doesn’t have to comprise your entire investment strategy, though it’s no sin if it is. However you slice it, you’re better off using your own interest-free cash to execute a basic investing strategy than you are taking out a loan amid the pressure of having to beat its interest rate as you add another monthly payment to your budget. The Bottom Line: On average, the S&P 500 tends to return around 10% annually. The QQQ nearly 23% during the 10-year period ending, November, 2021. While past performance doesn’t guarantee future results, if you stay in that ballpark of returns, consider yourself fortunate. The home runs some people have hit during the pandemic in tech, on meme stocks, and via cryptocurrency prompted more than FOMO. They have created a crisis of overconfidence. Running fast and loose in a margin brokerage account is risky enough. Don’t up the ante by putting the work you did to pay down your mortgage on the line. |
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