Carey Wealth Management

“We will, we will inflate everything”. Listen to the song We Will Rock You by Queen while replacing “rock you” with “inflate everything” and that is what we are all experiencing at this post pandemic economic moment. The Federal Reserve continues to buy bonds and hopefully by the next newsletter they will have stopped.

As I have mentioned before in earlier newsletters, some inflation is healthy for the economy and too much inflation is bad, very bad. On the long term, even with all the current inflation pressures we can still see some positive longer-term signs, such as more companies announcing plans for expanding manufacturing in the United States. If more investments in the future flow to the US instead of China (or other cheaper labor countries) we are going to witness The Great American Expansion.

Shorter term, the Federal Reserve has created an inflation monster. As the Federal Reserve tries to tame inflation, we could finally see some downward pressure on stocks.
Currently, FOMO (Fear Of Missing Out) and TINA (There Is No Alternative) are driving a lot of investment decisions. Let’s step back from FOMO and TINA and review the fundamentals of stocks and bonds.

When you buy a stock, you own part of the company. Stocks are called equities. Overtime, owning a stock can grow your money through receiving dividends and stock appreciation. Stock appreciation occurs from the company becoming more valuable, as they grow their business and make more money.

Some companies pay their owners a dividend. The dividend can either be received in cash or reinvested back into the company. Thus, the reinvested dividend buys more shares in the company. At Carey Wealth Management we can turn on and off the dividend reinvestment depending on various factors for each investment and each client account. Another detail about dividends is some companies do not pay any, like Amazon for example, does not pay a dividend. Some companies do pay a dividend, but they can suspend the dividend when they have cash flow issues. An example of that is Ford, who pays a dividend, however they suspended the dividend in 2020 and just announced they are going to start paying a dividend again.

Stocks can also be owned through Exchange Traded Funds (EFTs) and Mutual Funds.
Keep in mind that the two benefits of owning a stock are dividends and stock appreciation. If companies grow and make money, owning their stock leads to growing your money. However, if a company doesn’t grow and doesn’t make money, owning their stock will lose your money.

We can also invest in bonds/CDs. When you buy a bond or CD you are not an owner in the company, you are a lender to that company. Bonds/CDs are called fixed income. Example, if you buy a 10-year Bank of America bond, you don’t have any ownership in Bank of America, instead you have lent money to Bank of America for 10 years. Bank of America will pay you a coupon payment (interest) over the 10 years. At the end of the 10 years, the bond will mature and you will receive back the original amount you lent to Bank of America.

Bonds can also be owned through Exchange Traded Funds (EFTs) and Mutual Funds.
Both stocks and bonds have risks of losing money if the company doesn’t grow or doesn’t make money. If a company goes bankrupt both stock holders and bond holders can lose everything.

With bonds you can diversify risk by owning bonds from the US government, or state and local governments. Also, you can own CDs which are FDIC insured. A CD is just like a bond from the stand point that you are lending the bank money and they will pay you interest and return the amount you lent them when the CD matures.

Currently there is almost zero opportunities in the CD and short-term bond market due to the Federal Reserve. For each of our clients we have a bend of stocks and bonds/CDs/cash. This blend is called the asset allocation. The asset allocation is customized for each client and each account. Example, a client has a Trust account which is taxable and an IRA account which is not taxable until money is taken as a withdrawal. We manage each account differently even then both are owned by the same client.

Both stocks and bonds are always changing. What is great today could be terrible tomorrow and what is terrible today could be great tomorrow.

We have been living through a period where most assets are being inflated, and we might need to live through a period where most assets are being deflated. Owning quality investments, diversification, and balancing risk versus reward will always be our focus

Remember, we plan, we manage, we care about your future®