We got some good news on the job front this morning.
It seems that in the past week, the number of laid-off workers fell by 19,000.
Great news for the average American worker… Great news for the economy… Great news for your investments, right?
Well not so fast…
Yes, I’m thrilled that fewer workers are being laid off from their jobs.
I hate seeing families lose a source of income, have to file for unemployment and struggle to find work. It’s a stressful situation!
So any news that fewer Americans have to go through this process is absolutely good news.
But when it comes to your investments, the market can have a twisted logic — almost like an ironic joke that can leave your savings vulnerable.
Today, I want to help you think through what good news for the economy really means.
And I’ll help you prepare your retirement account to sidestep danger and profit from the next season for our economy.
When Good News Is Bad News — Especially for Mega-Tech Stocks
Markets have a strange way of reacting to the news. Sometimes it just doesn’t make sense until you start to put all of the puzzle pieces together.
During the most recent bull market that lasted from 2009 until the beginning of 2020, we constantly ran into situations where bad news for the economy was actually good news for investors.
Markets would surge higher whenever there was a weak economic report because it meant that the Fed would be likely to help support the market.
There’s an old phrase on Wall Street that you should never fight the Fed.
So when a weak economic report made it more likely that the Fed would cut its target rate or buy more bonds, investors reacted by buying more stocks.
But we’re in a very different situation today.
The Fed already has its target interest rate at an extremely low level.
And the Fed is already purchasing billions of treasury bonds and mortgage-backed securities. This helps keep interest rates low on everything from your savings account to your mortgage.
But what happens when the economy reopens — will the Fed continue to support it in the same way?
Well, even though the Fed has stated that it won’t increase its target rate anytime soon, there’s a lot more to the story than that one number.
Even before the Fed officially raises its target rate (which only really applies to overnight lending between banks), the Fed will start reducing how many bonds and mortgage-backed securities it purchases.
And that will allow market interest rates to edge higher.
This shift will cause ripple effects through the stock market, sending some of the most popular names sharply lower.
And while professional investors on Wall Street are watching this situation very closely, it’s likely to catch a lot of individual investors off guard.
Fortunately, there are some practical steps you can take to protect your retirement savings and set yourself up to succeed.
Fortifying Your Retirement For the Coming Market Shift
Higher interest rates are on the way. There’s no doubt in my mind that we’re going to see major rate increases throughout 2021.
And while most individual investors don’t spend a lot of time thinking about interest rates, this is an issue you should pay close attention to.
There’s a sense that investors have no alternative but to buy shares of popular stocks and hang on for the ride. There’s even an acronym that’s been popularized: TINA (There Is No Alternative).
As the market rose driven by a handful of popular stocks, investors had no alternative but to invest in these names.
After all, with low interest rates, there’s no other way to grow your wealth than to invest in these mega-cap tech stocks.
But when interest rates start rising, TINA’s power over markets will weaken.
Keep in mind that higher interest rates are almost certainly going to come with a spike in inflation.
For more on this, take a look at some of the recent Rich Retirement Letter alerts that we’ve sent. Inflation is coming and that creates its own risks for retirees.
Higher interest rates will naturally cause institutional investors to start selling their shares of big tech stocks so that they can diversify into other more profitable areas of the market.
And as these stocks start losing value thanks to the sell orders, we’ll see individual investors panic and follow suit.
It’s a story as old as time…
The institutions see a move and start shifting their positions. And individuals see the trend shift too late and wind up getting hurt.
Don’t let that be you!
Instead, you can go ahead and start building investments in some of the areas that will benefit from higher interest rates and a rise in inflation.
We’ve talked about many of these opportunities here at Rich Retirement Letter. And we’ll continue to highlight the best opportunities throughout the market shift.
Owning shares of companies that have tangible products — things you can touch and feel — is a great way to protect your wealth.
That’s because inflation will cause the value of the tangible resources the companies own to rise higher. And as a shareholder, the value of your ownership of the company will also rise.
I love the idea of owning materials companies, real estate plays, miners of industrial and precious metals and even manufacturing companies in today’s environment.
It’s true that the economy is improving. And that’s great news for our workforce and country as a whole.
But the shift to a growing economy will cause some changes in which industries will lead the market.
Make sure you’re invested in the areas that will help you grow and protect your wealth throughout this dynamic period.