On Money & More – October 2021

A few articles ago, we identified inflation as something to keep an eye on. And sure enough, inflation has been putting on a show! Housing prices in Jackson County were up almost 25% in the 12-months ending in last May. The median house price in Jacksonville is now over $562,000! And these increases aren’t just in the Rogue Valley; much of the country has witnessed similar housing cost inflation. Since we last addressed inflation, car prices have continued to skyrocket. Through the end of July, used cars were now 42% higher than just a year ago . That old beater in your driveway just might be worth more than you thought! What about some of the smaller, everyday expenses? Kroger announced on their company earnings call in September that groceries are expected to climb another 2-3% in the second half of 2021. Enjoy grilling a steak on the weekend? Beef prices are up 14% this year.

Investors have many different goals; saving for retirement, buying a new house, and paying for college to name a few. But, one of the fundamental goals of investing is to “keep up with inflation.” The question for this month’s article is: With inflation running “hot” in so many different areas, how are investors supposed to invest?

The biggest challenge we see is for investors’ cash positions. “Money in the bank” is actually “money losing value” with short-term interest rates near 0% and the Consumer Price Index (a popular gauge of inflation) up over 5.4% annually through July. Will short-term rates begin to rise? Let’s hope so! A lot of savers would like to see their cash have a greater return, but Federal Reserve Chair Jerome Powell has suggested he is in no rush to raise rates. In fact, the Federal Reserve is actively keeping rates lower through bond purchases. Tapering these bond purchases is step #1 when the Fed decides to take on inflation pressures. Mr. Powell has suggested that the end of this year will be an appropriate time to begin this tapering process.

What about bonds? Well, here the news is not too much better. With rates near all-time lows, bond prices are at all-time highs. And, just as with cash, rates on bonds just aren’t that attractive. The US 10-year treasury is currently yielding 1.32%. This expected return is hardly a bargain with inflation running well above these levels.

Which brings us to the opportunities in stocks. Equities are trading near all-time highs as well, and their risks are much higher than cash or bonds, however, there are pockets of opportunities for equity investors. After all, stocks are not monolithic. There are large companies, small, domestic, international, technology sector, industrials, and on and on. Finding these opportunities is, of course, the biggest challenge.

So, what is an investor to do? With everything looking expensive, perhaps focus on the attributes each investment brings to your portfolio. Cash remains ideal for paying the bills! Bonds remain ideal for stability. Stocks remain ideal for growth. Diversify your assets accordingly, knowing what the goal for each investment is and then build your portfolio from these assumptions. At Cutler, we help clients find the right investment mix for their needs. Let us know if you’d like to learn more!

All opinions and data included in this commentary are as of September 13, 2021 and are subject to change without notice. The opinions and views expressed herein are of Cutler Investment Counsel, LLC and are not intended to be a forecast of future events, a guarantee of future results or individual investment advice. This article is provided for informational purposes only and should not be considered a recommendation or solicitation to purchase or sell securities. This information should not be used as the sole basis to make any investment decision. The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Investing involves risk, including the potential loss of principle. Neither Cutler Investment Counsel, LLC nor its information providers are responsible for any damages or losses arising from any use of this information.