The Fed Doesn’t Want You To Buy Stocks Right Now
Here’s What I Do To Generate Returns Instead
Warren Buffett once said “Interest rates are to asset prices like gravity is to the apple”.
His point is that if cash or U.S. T-Bills (considered risk free assets) can provide a decent return, then investors shouldn’t be willing to pay as much for risky assets like stocks (historically meaning they will go lower in price).
The U.S. Federal Reserve knows this, and if they are raising interest rates to cool the economy then the corollary is they want investors to take less risk.
But we still need to make money on our hard-earned cash. How?
Earn Three Times on Every Dollar
I am going to give myself a target here: 9%. That’s roughly the compound annual growth rate of the stock market before inflation over the long term.
This means if we can earn risk free returns of, for example, 5%, then we only need to generate an additional 4% (9%-5%) to match the market.
Here’s why this is important: I have a three-tiered strategy and tier I involves earning from these interest rates.
