Building Wealth 2022 has started off with a bang...
From new COVID-19 variants to fears of war with Russia to a stock market correction, it's already a busy – and stressful – time for folks.
Amid all the dire headlines last week, Stansberry Research hosted its annual kickoff event with Stansberry Research partners Dr. David Eifrig and Dr. Steve Sjuggerud, along with Director of Research Matt Weinschenk. They explained why 2022 could actually be a fantastic year for investors... if you take the right steps with your money. And they answered lots of questions from subscribers.
But readers have flooded our inbox with even more questions. So earlier this week, Health & Wealth Bulletin Managing Editor Laura Bente spoke with Matt about the recent market correction, his take on the current COVID-19 situation, and why it's always a good time to invest...
Laura Bente: Thanks for taking the time to talk to me today, Matt. During last week's kickoff event, you, Doc, and Steve talked about some of the hot topics of today and what you see happening in the markets over the next year.
Since then, we've heard from a lot of readers wondering what you think about some of the big news that happened last week. The main topic is last week's stock market correction.
Last week, we saw stocks slip into correct territory. Do you see this as a temporary correction, or should we be worried about a bear market?
Matt Weinschenk: That's not an easy question! I'll give you my opinion, but it's important to note that you have to set up your investments in such a way that it doesn't all hinge on getting the answer to this single question right.
Investing isn't about market timing because that's almost impossible to get right on a consistent basis. You want to combine positions in such a way that you are covered no matter what happens.
I don't think that we're entering a huge bear market here. I'm not worried about a collapse and a 30% correction like we saw during COVID-19 or the 2008 financial crisis. At the same time my gut tells me we're not at a bottom yet.
This, I think, is a buying opportunity for investors, but a short-term trader likely will see more downside.
Laura: Last week, the Federal Reserve said it would keep rates near zero for the month but that a rate hike is likely in March. What would the Fed raising rates mean for investors? And should we expect more rate hikes throughout the year?
Matt: We should expect rate hikes. The question is how many and how fast.
Inflation stats tell us that the Federal Reserve absolutely needs to raise rates (and end quantitative easing).
For investors, rate hikes mean bond returns will suffer – but they'll pay better yields in the future. And it will mean more volatility in the stock market, but stocks can still rise while rates go up.
The biggest concern for individuals should be inflation and recession. We want the Fed to slow inflation so our dollars remain strong, but we don't want them to raise rates so fast it causes a recession. Either of those outcomes causes real pain for people.
The Fed can potentially thread that needle... but I think in the end they'll stop short of causing a recession, and we'll need to deal with higher inflation than we're used to.
Laura: In June of last year, you and I discussed one of the biggest problems facing retirees... inflation. Is that still a major concern this year?
Matt: Yes. Part of inflation comes from all these supply-chain and labor problems caused by COVID-19. Now, that is easing... but inflation has been stubborn. We don't fear hyperinflation... and we think that rates will come down from the 7% or so we see today.
However, it's not going back to 1% or even 2% like we saw prior to the coronavirus. It will be somewhere in the 3% to 5% range. And if prices rise 5% a year, that starts to add up quickly.
Laura: Of course, the news is still dominated by COVID-19. Here in Maryland, we're seeing mask mandates again, school closures, and hospitals activating crisis protocols. And grocery stores still have empty shelves as the supply chain hasn't yet caught back up. Do you see us turning a corner in the pandemic this year?
Matt: Among the many things the pandemic has taught us, it's nearly impossible to predict this sort of thing. In September or so, it looked like we'd get back to normal, and then Omicron came and sent rates soaring again.
I think you'd be foolish to predict anything with particularly high conviction right now – but my expectation is that this Omicron surge will be the final blow and we'll move to a stage in which COVID-19 is endemic, more like the flu. If we could get one more variant with milder health effects, we'll get to that point.
Laura: What would you say to our readers who are wondering if now is a good time to put their money in stocks?
Matt: It's almost always a good time to put money into quality businesses. But you can't just pay any price for them. When markets are soaring to extreme levels, if you get in at the wrong time, it can take a long time to get your money back.
However, look at a quality name like Alphabet (GOOGL), the parent company of Google. We know this is a profitable business with huge competitive advantages.
In November, it traded for 42 times earnings, if you want to use the price-to-earnings ratio for valuations. At that price, everything needs to go right for Google for investors to keep making money. And maybe everything will go right for a while.
Today, it trades for 30 times earnings. That's a much better investment but still not particularly cheap. Maybe it trades for 25 times earnings in the next couple months. But you can feel good putting your money to work at today's prices.
And there are plenty of stocks like that out there today.
Laura: Thank you again, Matt, for joining me.
Still have more questions? Send them our way to [email protected].
Here's to our health, wealth, and a great retirement,
Laura Bente, CFP® with Dr. David Eifrig
February 3, 2022