Ever Hear “Don’t Fight The Fed”? Remember, It’s True When Fed Funds Rate Rises & Falls?
Throughout my 22 year career as a Portfolio Manager & Financial Advisor, I have heard a million times “Don’t Fight the Fed”. When they are raising the Federal Funds rate, eventually economy will slow, thus causing Stock Market to drop. When the Fed cuts rates, eventually the economy will grow, thus causing Stock Market to rise. What time frame either of those events takes place is the million dollar question.
Over the past several years we have seen the Fed cut rates & institute Quantitative Easing to stimulate the economy, and it worked, both the Stock Market and economy have risen substantially since the last Financial Crisis!
Everyone, other than Short Sellers, love when the Stock Market goes up. Since Quantitative Easing was a big factor to the market going up, now the Fed has started Quantitative Tightening, therefore, it would be in your best interest to start warming up to reducing your equity exposure. How much equity exposure you should reduce will depend on your age, and what annual return or income you need from your investments.
So in summary, “Don’t Fight The Fed” when they started Quantitative Easing & Federal Fund rate cuts, economy and investors greatly benefited. However, now the tables have turned and the Fed has started Quantitative Tightening and raising the Federal Funds rate. What does this mean, you got it, the Stock Market will decline and the economy will slow. When that happens, and how much the economy slows, only time will tell. You best have a plan or talk with your Financial Advisor about your plan.
If you are a Baby Boomer, remember, you may be for the first time in your life at a point where when the Stock Market drops you are also taking out money, unlike in previous declines, where you may have been buying more stocks as the market declined as part of your Dollar Cost Average philosophy.
If you need help with a plan or want a second opinion on your investments, please contact me today!