Transcript:
Easan Arulanantham:
The Federal Reserve says they’re going to increase rates three times and 2022, should I change my allocation? Or should I keep my same allocation? Maybe change? What’s in my stock piece? Or what’s the bond piece? You know? Do we wait till there’s actual raises before we make the changes? Or try to preempt the changes?
Tom Vaughan:
Yeah. Okay. So it’s actually I watched Chairman Powell, the Fed governor, speak on Wednesday. And they’re actually not saying they’re going to raise rates, what they’re what they’re referring to, is this, what they call the dot plot. And that’s where each fed Governor guesses how many rates they might do. And actually, it’s sort of predictive of what might happen. But there was five of the eight that said three rate increases, and three of the other three said to rate increases, so you know, the markets gonna react to that and factor that in. But again, you know, you can have a scenario where we don’t need to raise interest rates, I mean, probably the most probable scenario in that regards, would be solving supply chain issues, and figuring out how to get you know, all of these products that people want out. And let’s say that they overdo it, which is the norm, I’m telling you, this is what once we finally do solve that we’re gonna end up with too many cars, too many, you know, computers, too many, you know, graphic cards, all these things that are short, right now, you know, the shelves will be stocked and they’ll start having to have sales, they’re going to over respond, typically is what happens. And so if that happens, you think about it, those are anti inflationary situations, and the Federal Reserve, hopefully keep some flexibility in place, and maybe they don’t even raise rates in 2022.
Originally going back to last year, that was the expectation that we would not have rate increases here in 2022. So to kind of answer that question, it’s a long answer for a short question. But really, I would be pretty cautious about trying to guess what’s going to happen there. Because I’m not convinced that that is the number one scenario. And I would stay with kind of a broad market approach. I would buy, you know, VTI, t o t, and those types of things, their broad market Exchange Traded Funds, where they buy essentially all of the stocks, small, mid Large Cap growth value, you name it. And because as the market turns around, right, you know, it’s gonna be very hard to make adjustments. So if you’re trying to buy into things that you think would do well, during this Fed rate raising, you could be wrong. But one thing I think will happen, I do think the market itself will go up as a whole. And very much like we saw this year, the market went up as a whole, but the churning was ridiculously high. And so he’s still made money if you bought the broad market indexes, and could do much worse if you weren’t if you’re trying to guess where things were going to go. Because there’s just again, this is not a normal scenario, it’s very difficult to guess in advance where things are going to go. I’d definitely like to see more trends develop before I get involved in making, you know, guesses and adjustments in that particular direction in my opinion.