US stocks to bonds in relation to FED interest rate & inflation
Potential equity upside: uncertain.
Potential equity downside: uncertain.
FED is currently paused at 5.5% interest rates, and even if they did increase rates again like they did in 2000 after pausing at 5.5% from 1995-1998, a pivot to start decreasing rates is due in the coming years- continuing the long term stock/bond market cycle.
30 year bond yields at levels not seen since 2007…but still has 25% upside to reach levels of 1999. Going from current 5.08% to 6.43% where the 30 year yields peaked going into the tech bubble inflation era. That was FED interest rates at 5.5% from 1995-2000…
FED pivot: certain.
FED pivot time: uncertain
Will inflation continue to run hot as tech gains continue? Or will crazy bond yields break the banks and they need a bailout amidst a prospective world war really putting FED in a pickle…
How I’m going to position solely for a FED pivot: start buying bonds now as we are in the beginning of rates being paused (yellow arrow on chart) and risk off equity. I like cost averaging into TMF even if it ends up being for the next 5 years- in comparison to 1995-2000 inflation levels.
That is why dca is very important and to not use funds needed for daily living. If that were the case, selling covered calls generates easy income and can add that profit to equity position to dca further. That is until FED interest rates start being lowered. At that point, hold the current average cost. That is shown on the chart as a red arrow down.
Do not take profit until what is shown on the chart as a blue arrow, or when FED interest rates are paused while decreasing.
The potential to miss equity upside is there up until the FED pivot. That, to me, is just what it is. Chasing equity high up until FED pivot. And I am not comfortable doing that with prospective world wars beginning involving USA.
However, the potential for bond face value appreciating for years to come while inflation goes back down to 2% goal is far greater. The time that comes is just uncertain. But certainly, it will come.
Dividend yields remain high until rates pivot down, so with this strategy, there’s fixed income along the way. And is intended from dca to never realize any loss.
When US inflation rate is back below 2% target goal, whenever that is, start to add on equities. When FED interest rates start increasing again, sell all 20 year bonds and full risk on equities.
Potential equity downside: uncertain.
FED is currently paused at 5.5% interest rates, and even if they did increase rates again like they did in 2000 after pausing at 5.5% from 1995-1998, a pivot to start decreasing rates is due in the coming years- continuing the long term stock/bond market cycle.
30 year bond yields at levels not seen since 2007…but still has 25% upside to reach levels of 1999. Going from current 5.08% to 6.43% where the 30 year yields peaked going into the tech bubble inflation era. That was FED interest rates at 5.5% from 1995-2000…
FED pivot: certain.
FED pivot time: uncertain
Will inflation continue to run hot as tech gains continue? Or will crazy bond yields break the banks and they need a bailout amidst a prospective world war really putting FED in a pickle…
How I’m going to position solely for a FED pivot: start buying bonds now as we are in the beginning of rates being paused (yellow arrow on chart) and risk off equity. I like cost averaging into TMF even if it ends up being for the next 5 years- in comparison to 1995-2000 inflation levels.
That is why dca is very important and to not use funds needed for daily living. If that were the case, selling covered calls generates easy income and can add that profit to equity position to dca further. That is until FED interest rates start being lowered. At that point, hold the current average cost. That is shown on the chart as a red arrow down.
Do not take profit until what is shown on the chart as a blue arrow, or when FED interest rates are paused while decreasing.
The potential to miss equity upside is there up until the FED pivot. That, to me, is just what it is. Chasing equity high up until FED pivot. And I am not comfortable doing that with prospective world wars beginning involving USA.
However, the potential for bond face value appreciating for years to come while inflation goes back down to 2% goal is far greater. The time that comes is just uncertain. But certainly, it will come.
Dividend yields remain high until rates pivot down, so with this strategy, there’s fixed income along the way. And is intended from dca to never realize any loss.
When US inflation rate is back below 2% target goal, whenever that is, start to add on equities. When FED interest rates start increasing again, sell all 20 year bonds and full risk on equities.