Profiting from Fed Missteps
The Federal Reserve has a long history of missteps, wrong moves and flat-out bad decisions so understanding that’s going to be a part of the process that you don’t really control going forward and understanding it’s going to be happening from time to time what you need to concentrate on is what you can control and that’s your reaction to the overall environment.
Federal Reserve is Always Late and Overreacting
Federal Reserve is always late and always overreacting. This particular time period we’re just coming out of was a combination of massive stimulus at the same time when we were all forced to stay home. As the economy was flooded with money and as supply chain disruptions popped up, that would have been the time and a period where it would have been right to raise interest rates to help combat some of that money flow into the economy. But they didn’t they sat on their hands too long to the point inflation hit the economy now they’re coming in with a sledgehammer.
That Causes Market Dislocations
The fact that the Federal Reserve is late, and overreacting will usually and most likely cause market dislocations for periods of time as markets and assets classes reprice themselves. Remember the markets are always in a tug of war between the Bulls and the Bears but in certain time periods where we have these market dislocations one tug to the other side can be extreme on the Bull or Bear side depending on what the environment is and what the Federal Reserve is actually doing.
So, these market dislocations in our particular time period is one of rapidly rising interest rates. Think about what we are coming out of which was ultra-low interest rates as well as cheap and easy money. Now we have shocks to the system with rapidly rising interest rates and you can see the chain reaction this has in the money supply and the overall economy in different places.
Different Reactions for Expenses and Assets
What does all of this really mean for us on an individual basis? We have different reactions in terms of what’s happening in different parts of our financial plan. For example, on the expense side whether it’s rising inflation with food, transportation, housing we feel those pricing pressures in the budget. Also, with rising interest rates, the money that we pay to service debt is rising so we’re getting squeezed on that side as well.
At the same time, we’re having selloffs and price corrections in asset classes like stocks and real estate. Now will this continue to gather steam and become something bigger that’s still yet to be determined but what we have to understand is dislocations (when they happen) they can present great entry points for long-term positions in things like quality stocks or quality pieces of real estate.
Dislocations Can Present Great Entry Points
What we must do is prepare to win in situations and environments like these when they occur. Our personal finance takes time, energy, and resources. If we want to get better and create better outcomes, we have to prepare to win so what we have to do is have cash ready to make moves. Right now we need to earn additional money with side hustles or income-generating opportunities; whatever we need to do to generate cash during this particular period of time we need to have cash ready to deploy and then we need to create that shopping list. Whether it’s stocks, real estate, cryptocurrency, etc. whatever it is when those dislocations and those market crashes happen, we need to be ready to take massive action.
Prepare and Put Your Plan in Action
Remember you have to prepare to come into an environment like this ready to take action not trying to prepare as the market dislocation is happening and then when you put your plan of action in place you have to make data-driven decisions. You can’t get emotional; in these times the markets can get really extreme and really scary sometimes you don’t want to make emotional and/or impulsive decisions. That is not a viable way to long-term prosperity.
Finally, never forget people make money in Bull markets but fortunes are made in Bear markets, people just don’t realize it at that time.
Information is for educational purposes only this is not a recommendation to buy stocks, real estate, cryptocurrency, or any other asset at any particular time. This is a recommendation to continue to improve your personal finances as well as improve your financial literacy and learn more about how to get ahead no matter what environment