Higher or Lower?
Are today’s higher interest rates here to stay?
What does that mean for you and the sustainability of your portfolio 25 years from now?
Some might assume that higher interest rates indicate higher inflation rates, but that isn’t necessarily the case.
For much of 2022, the yield curve has shown a sharp inversion, with short-term rates significantly higher than long-term rates. This suggests that interest rates would eventually decline. But alas, the long-term interest rate, as indicated by the 10-year Treasury bond, has been creeping up (3.28% as of April 1, to 4.69% today), and the inverted yield curve isn’t as inverted as it was two months ago.
10-Year Treasury Rate
If you are bewildered by today’s current economic climate, relax.
It is impossible to predict with any accuracy future inflation numbers and interest rates, and fortunately, it doesn’t matter.
What does matter is that you establish a portfolio that matches your financial plan. Paramount to your plan is your own personal inflation rate, which is the rate your expenses increase year over year.
In other words, quit focusing on the national inflation rate and start focusing on your personal inflation rate.
To calculate that number, start keeping closer track of your burn rate; that is, how much you spend each month.
I have worked with countless investors over the past 25 years to create a financial plan that works for them.
Together, we have discovered that the single biggest variable in the sustainability of a portfolio is one’s personal inflation rate.
When you take ownership of your personal inflation rate, it offers clarity on allocating your assets between stocks and bonds.
More importantly, it provides you the peace of mind in knowing that you, not the Federal Reserve, are in control of your financial destiny.
If you have $1 million or more of investible assets, take control of your finances and connect with me in a strategy call. Let's build a financial plan that offer clarity and control of your personal inflation rate.