Dear valued client,
All eyes were on the Federal Reserve this week as it raised interest rates by 0.75 basis points. This is the largest one-time increase by the Fed since 1994, which is evidence of a more aggressive approach to curbing inflation than we’ve since the beginning of the new year.
As I’ve said many times before, this is a delicate balancing act. It is not obvious to me that increased interest rates alone will bring about the stability of prices as we are still dealing with global supply chain issues and imbalances in energy markets. We must be willing to tolerate uncomfortable inflation for slightly longer than we’d ideally like to in order to avoid a recession that would have more widespread, deleterious effects on people’s wallets as well as the economy at large.
To provide some perspective on inflation around the world, here are current rates by country:
- Turkey: 73.5% (and President Erdogan continues to ‘ask’ the central bank to print more money)
- Argentina: 60.7%
- Russia: 17.1%
- Brazil: 11.7%
- UK: 9%
- Netherlands: 8.8%
- Spain: 8.7%
- USA: 8.6%
- Germany: 7.9%
- Mexico: 7.7%
..
13. Canada: 6.8%
I’d like to piggyback off of last week’s idea of compound interest and introduce a related investment notion; The Rule of 72. Just as our penny from last week was doubling in value every day, The Rule of 72 allows you to calculate how long it will take for your investment to double in value.
Here’s how it works…
72 / annual rate of return = how many years it will take to double your money.
i.e., let’s assume rates of return of 5%, 10%, 15%, and 20%.
- 72 / 5 = 14.4 years.
- 72 / 10 = 7.2 years.
- 72 / 15 = 4.8 years.
- 72 / 20 = 3.6 years.
Imagine doubling your investment every 3-5 years! If we use a more charitable margin of safety, we can expect our investments to double every 5-10 years. That’s assuming, of course, we STAY invested, and ideally, keep adding to it.
Buy and hold.
Buy and hold.
Buy and hold.
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch
Have a terrific weekend,
PW
A very Happy Father’s Day on Sunday to all the fathers reading this.
“Every father should remember one day his son will follow his example, not his advice.” – Charles Kettering
