<\/p>\n
Like many investors, I have a lot of my retirement fund invested in stocks. And like many investors, I\u2019ve been white-knuckling it for a month now as my portfolio plummets.<\/p>\n
The war with Iran has trashed the stock market, now down for 5 consecutive weeks and entering correction territory, meaning down 10% or more.<\/p>\n
Interest rates have risen radically and gas prices are crossing $4\/gallon, up more than $1\/gallon from pre-\u201cexcursion\u201d levels.<\/p>\n
When will all this end and when will stock prices recover?<\/p>\n
I recently asked artificial intelligence (Gemini Pro, specifically) for input. Here\u2019s the wording of the question I asked, otherwise known as a prompt:<\/p>\n
\nYou\u2019re one of Wall Street\u2019s leading experts on the economy, stocks and interest rates. Investors have watched their savings being butchered as higher interest rates and gas prices threaten to send inflation higher and stocks lower.<\/em><\/p>\n
Investors are clamoring for advice and looking to you for answers. They want to know what\u2019s going to happen in three specific areas: stocks, interest rates and the housing market. What will you tell them?<\/em><\/p>\n<\/blockquote>\n
First, I\u2019ll give you the answer AI provided, then I\u2019ll offer my opinion from my over 40 years of stock market investing and advising.<\/p>\n
Here\u2019s the answer from AI<\/h2>\n
You\u2019ve watched your savings get butchered, and you\u2019re not alone. Between climbing gas prices and interest rates that have been creeping higher, inflation is threatening to send the stock market into a tailspin.<\/p>\n
People are clamoring for answers. They want to know when the bleeding stops and what to do with their money right now.<\/p>\n
According to Bloomberg, recent inflation data is proving much tougher to beat than experts originally predicted. That means the era of easy money is dead.<\/p>\n
Here\u2019s exactly what you need to do regarding stocks, interest rates and the housing market.<\/p>\n
1. Stop waiting for the stock market to rescue you<\/h3>\n
The reality:<\/strong> Wall Street is throwing a tantrum because the days of falling rates are gone, at least in the near future. Higher gas prices eat directly into corporate profits and consumer wallets, which means stock prices are going to stay choppy.<\/p>\n
The strategy:<\/strong> Stop trying to time the bottom. It\u2019s a fool\u2019s errand. Instead of panic-selling your entire portfolio into cash, you need to pivot your investments to quality. Look for companies that generate massive amounts of cash and pay consistent dividends.<\/p>\n
When inflation runs hot, you want to own businesses that can pass their higher costs directly onto the consumer without losing a single sale, like drug companies. If you\u2019re holding onto speculative, unprofitable tech stocks hoping they\u2019ll magically rebound to their past highs, you\u2019re going to get burned.<\/p>\n
2. Milk the interest rate environment for guaranteed cash<\/h3>\n
The reality:<\/strong> Higher interest rates are a nightmare if you\u2019re carrying credit card debt, but they\u2019re a goldmine if you have cash sitting around.<\/p>\n
The strategy:<\/strong> The Federal Reserve is keeping rates elevated to fight off inflation. That means you can get paid a highly respectable return without taking on any stock market risk. If you have money sitting in a traditional checking account earning zero point nothing, you\u2019re literally losing money to inflation every single day.<\/p>\n
Move your cash into a high-yield savings account, buy a short-term bond fund or lock in a certificate of deposit. You can easily find yields hovering around 4% or 5% right now.<\/p>\n
Take the guaranteed money while it\u2019s sitting right there on the table.<\/p>\n
3. Face reality on the housing market<\/h3>\n
The reality:<\/strong> Buyers are exhausted. You\u2019ve got high home prices colliding head-on with higher mortgage rates, creating the most unaffordable housing market we\u2019ve seen in decades.<\/p>\n
The strategy:<\/strong> You need to erase the idea of a 3% mortgage from your memory. It isn\u2019t coming back anytime soon. If you\u2019re sitting on the sidelines hoping for a housing crash that will let you swoop in and buy cheap, you\u2019re going to be renting for a very long time.<\/p>\n
If you find a house you love and you can easily afford the monthly payment today, buy it. If rates eventually drop down the road, you can always refinance. But if buying stretches your monthly budget to the limit, stay put and keep renting. Don\u2019t let the fear of missing out force you into a 30-year financial prison.<\/p>\n
Now, here\u2019s my opinion<\/h2>\n
What\u2019s happening with stocks, interest rates and housing these days is brutal, but it\u2019s not complicated.<\/p>\n
Trump\u2019s \u201cexcursion\u201d into Iran is fueling inflation and threatening the world economy as higher fuel prices and interest rates filter through the financial system.<\/p>\n
Keep in mind that higher gas prices aren\u2019t only something you feel when you fill up. They raise the price of everything that\u2019s being transported, which is basically everything. And oil is also a key ingredient in many products, ranging from plastics to fertilizer.<\/p>\n
Higher prices obviously goose inflation, but they also hurt the economy, as more of your disposable income goes to gas and less to other things.<\/p>\n
As I\u2019ve said before, the depth of damage to the world\u2019s economy hinges on two things:<\/p>\n
\n
- How long the war lasts<\/li>\n
- How long it takes to repair the damage<\/li>\n<\/ul>\n
When the war ends, which will hopefully be soon, things won\u2019t instantly go back to normal. Damaged Middle Eastern infrastructure will take months, even years, to rebuild. This will keep oil prices higher for longer, which in turn will keep interest rates higher for longer.<\/p>\n
The danger is that higher rates and a slowing economy will result in a situation known as stagflation: a combination of increasing inflation and a lousy economy.<\/p>\n
If it continues long enough, a recession can result.<\/p>\n
What I\u2019m doing now<\/h3>\n
Although I have a lot invested in the stock market, I\u2019ve also been keeping a lot of cash on the sidelines. Even though I don\u2019t expect a quick market turnaround, I\u2019ve started periodically deploying a little of that cash into the Invesco S&P 500 Equal Weight ETF<\/a>.<\/p>\n
With rates higher, I also want to add to various bond funds in my retirement accounts. But I\u2019m going to wait a bit to see if they might get cheaper as inflation begins to bite and rates rise further.<\/p>\n
In short, I\u2019m doing some dollar-cost averaging into stocks and for now at least, waiting to add to fixed income investments.<\/p>\n
Still stressed? Check out my recent article, \u201cFreaking Out About the Stock Market? Read This<\/a>.\u201d And if you\u2019re not already a member of this site, subscribe right now for more updates and free expert advice<\/a>.<\/p>\n<\/p><\/div>\n