Inflated 2022
Happy New Year and hope everyone is doing well. It’s been a lot going on in the world and it’s changing in so many ways everyday. This is a quick article to talk about inflation, covid, and what to invest in.
Inflation
It seems like I’ve been talking about this in my past 3 articles but it’s necessary to understand. Read the past 2 articles, if you haven’t, to understand where we are today. The US inflation rate rose to 6.8% in 2021 which is the highest it has been since 1982. After doing some research on what occurred in the early 1980’s it seems like we are in very similar times. The economy fell into a recession from January 1980 to July 1980 shrinking at an 8% annualized rate. The economy then entered a quick period of growth and in the first three months of 1981 grew at an 8.4% annualized rate. When the federal reserve raised interest rates to fight inflation, the economy dipped back into a recession from July 1981 to November 1982.
In 2020, we experienced our short recession, and the past year we have seen the price of everything increase as a result of inflation. At some point the government and federal reserve needs to step in to resolve the inflation problem. The most common way is to increase interest rates. In general, when interest rates are low, the economy grows, and inflation increases. Conversely, when interest rates are high, the economy slows and inflation decreases. Higher interest rates mean higher borrowing costs and people will eventually start spending less, ultimately causing the demand for goods and services to drop. Inflation “supposedly” is the result of a strong and healthy economy but we all know that is NOT the case right now.
So here’s the problem. If the government and federal reserve do not increase interest rates, then the prices of everything will continue to increase in 2022, cash will be worth less, wealth gap increases and the average American will be priced out of a lot of things. The people who will benefit from this are people who already own assets such as real estate and stocks. If interest rates do increase (depending on how much), we will probably see another recession as spending will decrease. I personally think we are in no position to increase interest rates due to the pandemic and business not fully back up and running. So it’s kind of a lose-lose situation, unless you already own assets. With that being said the only thing you can focus on is owning assets; stocks, real estate, crypto, start a business etc.
Living with Covid-19
That’s it. That's the entire section lol. But seriously, it’s been 3 years. At this point everyone needs to adjust from the assumption that there is a magical end date to understanding and learning to live with it, as safely as possible; whatever that looks like for you.
What to Invest in?
Yourself
Tech/Internet Stocks
Index Funds (VTI and SPY)
Crypto
Don’t overcomplicate it. Dollar Cost Averaging works great. Getting started and staying consistent is most important. I hope to share more information with you all soon. Feel free to respond with your thoughts, ideas, or questions. I wish everyone the best in 2022.