The Federal Reserve just changed their policy on inflation – here is what this means for investors, the stock market, the real estate market, and your money – Enjoy! Add me on Instagram: GPStephan
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The Federal Reserve held a meeting yesterday morning to announce their new policy with regard to inflation.
Previously, the Federal Reserve has set an “INFLATION TARGET” of about 2% per year. BECAUSE the Federal Reserve has been seeing LESS THAN 2% inflation…and, in this year, we’re basically seeing NO INFLATION …the FED just said: We can let inflation go as HIGH AS IT NEEDS to…as long as we just “AVERAGE OUT TO 2% IN THE LONG RUN.”
Think of this like “making up for lost times” – or, encouraging short term inflation, with the expectation that they can bring it down in the future once our economy recovers. In the PAST, if inflation were to exceed 2%…EVEN IF PRIOR YEARS WERE WELL UNDER 2%…the Fed would begin to raise interest rates, and put a stop to rising inflation…but now, they’re going to let it ride for the purposes of bringing up that average, and helping get our economy back to a new normal.
Here’s the GOOD news…
FOR INVESTORS: This COULD MEAN the value of your investments could be going up.
That’s because, GENERALLY speaking, asset values like stocks and real estate RISE with inflation…that’s because, as more money is available within our economy, either from lower interest rates or more currency going into circulation, usually that money is spent and dispersed back into the economy, where it inadvertently boosts up stock and real estate prices as people spend and earn more.
Secondly, for anyone holding onto loans, especially MORTGAGES – this is a GOOD THING.
If you have a 2% mortgage on your property, but INFLATION is 3% per year – that means INFLATION is actually making your mortgage CHEAPER to pay off every year, by eroding away the amount you owe on it.
Third, high inflation also makes our national debt EASIER to pay off to the point where – the longer you DON’T pay it off – the cheaper it becomes.
So, overall…the WINNERS here are the people who have investments, who take out well calculated, low interest fixed rate loans, and who just HOLD ON to their investments as long as possible.
HOWEVER – Not everyone will be a winner, and there are some consequences to this…
The first person who’s going to lose from this is the person who isn’t investing their money.
If you haven’t been investing your money this year…your money has ALREADY lost its purchasing power compared to where we were in January, in terms of stock and asset prices.
Second, people who are SAVING MONEY are also going to lose in this situation.
Because the federal reserve is encouraging more inflation, that means that your savings are going to be worth LESS each and every year that you don’t either spend or invest it. Now, don’t get the wrong idea – it’s ALWAYS a good idea to hold some cash on the side in case of an emergency or for your normal expenses – BUT, you should always aim to keep that money within a high yield savings account, so it doesn’t lose AS MUCH value.
That means, the BEST course of action RIGHT NOW is just this:
One: Don’t keep TOO MUCH CASH on hand without having a short term purpose for that money.
Second, keep investing your money and then – JUST HOLD.
That means that you should ONLY invest money that you know you won’t be touching for at least 10 or 20 years, because who knows what will happen in the short term.
And third, it’s also just as equally important to stay employed, continue to grow and expand your skills, and negotiate a competitive salary as often as you can to make sure you’re fairly compensated for your work.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
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