In the Annual Forecast Issue of my newsletter, The Oxford Income Letter, I told subscribers to expect higher inflation in 2025. I expect inflation to rise to at least 4% and the yield on the 10-year Treasury to reach 5.6%. That's going to make life more expensive and could put pressure on stocks. I don't see that happening immediately, however. I suspect it will be a "second half of the year" event. In the meantime, there are a few things you can do to prepare for rising prices. 1. Own dividend growth stocks. The reason I am such a proponent of dividend growth stocks is so investors can be prepared for situations exactly like this. Dividend growth stocks are one of the very few investments that can help you maintain or even increase your buying power during inflationary periods. If you collected $500 in dividends last year and they're growing at 10% per year, you'll receive $550 in dividends this year. So even if inflation climbs above 5%, you'll still have more buying power than you did last year. Additionally, dividend growth stocks tend to be more conservative and safer than the broader market. They outperform in bear markets, and if you buy them after a decline in the market, you can obtain some very strong yields. 2. Keep some cash on the sidelines. Because rates have climbed over the past few years, you can earn a decent interest rate on your cash in money market accounts or short-term CDs. I recommend shopping around to make sure you get the highest rate. Keeping some money in cash will also allow you to pick up more dividend growth stocks when you're ready. 3. Own commodities. Owning commodities - or stocks/ETFs that are based on commodities - should also protect you from higher prices. Food- and metals-related stocks and ETFs are particularly attractive when prices are about to move higher. Washington's "Wisdom" The sad thing about all of this is that some of President Trump's other policies, like deregulation and lower taxes, are pro-growth. He has an opportunity to do some really good things for the American economy. However, this tariff policy could derail all of that. It appears that no matter who is in office, boneheaded decisions will continue to come out of Washington, as they have for decades. As investors, we need to take steps to protect ourselves from stupidity in whatever form it takes. Good investing, Marc |
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