The market has again reminded us that stocks can move in two directions.
It’s an old story but easy to forget: When inflation expectations rise, so do interest rates—and stock and bond prices fall. For the first time in five years, the consumer price index in 2017 registered an annual increase of more than 2%, and prices rose more than expected in January. The January jobs report showed a jump in wages.
Inflation has yet to reach worrisome levels, but the stock market dropped sharply after each sighting, with investors worried that the Federal Reserve would start aggressively raising short term interest rates—something we have not seen in a long time. (Through the end of 2017, the Fed had raised rates by a total of just 1.25 points over 11 years.) Longer-term rates, not waiting for the Fed, have soared. The yield on the 10 year Treasury note rose from 2.1% to 2.9% in just five months (prices are as of February 16).
Maybe it’s time to invest in a hedge, an asset that will buffer a decline in stock values. But other than selling the stock market short (essentially, betting on a market drop), which can be risky and expensive, there is no consistent way to invest in something that’s guaranteed to score a profit when stocks score a loss. What about bonds? In 2008, when Standard & Poor’s 500-stock index dropped 37% and nearly every other global asset got clobbered, long-term U.S. Treasury bonds returned 25.9% as investors sought safety. The next year, as stocks recovered, T-bonds lost 14.9%. But as we have seen lately, bonds often move in tandem with stocks.
Denne historien er fra April 2018-utgaven av Kiplinger's Personal Finance.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent ? Logg på
Denne historien er fra April 2018-utgaven av Kiplinger's Personal Finance.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent? Logg på
MAKING A DIFFERENCE IN THE LIVES OF DISABLED VETERANS
He suffered grave injuries in the line of duty. Now he helps other veterans who have disabilities.
DO YOU NEED UMBRELLA INSURANCE?
A policy can protect you from financially devastating events.
Navigating Finances as a Blended Family
Money matters can get complicated when two families unite. Planning is key.
BREAKING UP WITH YOUR BROKER
Be aware of these challenges when you move your money to a new home.
CHOOSE A MEDICARE PLAN THAT'S RIGHT FOR YOU
Consider your health care needs over the long term as you weigh costs and coverage.
Keep Faith in These Stocks
IN 1997, I coined the phrase “faith-based investing.” It has nothing to do with religion or with picking stocks at random.
OUR ESG PICKS ARE THRIVING
Despite an ongoing backlash, our favorite stocks and funds focused on environmental, social and corporate governance issues had a good year overall.
MONEY MANNERS FOR THE MODERN AGE
The customs for splitting a restaurant check, purchasing a wedding gift, tipping and more have evolved. These guidelines can help.
ELECTION 2024: POLITICS AND YOUR PORTFOLIO
Who wins the White House matters—but only at the margins when it comes to your investments.
YOUR GUIDE TO OPEN ENROLLMENT
With health care costs on the rise, it’s critical to select a plan that fits your needs at the right price.