Asset classes that perform well during a potential inflationary environment
Link to the full article: https://uakdiversified.com/blogs/f/financial-advice---inflation-and-investment
This letter is the second part of the two. Here is the link to the first part.
https://uakdiversified.com/blogs/f/financial-advice---inflation-and-investment
We will cover what asset classes perform well during a potential inflationary environment.
For Fixed Income/Bonds:
Inflation protected Treasury bonds (a.k.a. TIPS) - TIPS are designed to protect investors from the adverse effects of inflation. When TIPS mature, bondholders are paid the inflation-adjusted principal or original principal, whichever is greater. They are issued by the US government and have virtually no default rate. iShares TIPS Bond ETF can be a good choice for this consideration.
International bonds (high quality) – International bonds could be beneficial during periods in which the US government is operating a rapid mass printing of money, as they are doing right now. While the US government is committed to keeping the interest rate low (hence, keeping the bond yield low), it is also printing money at such a large scale that it could stoke inflation. Consider this, most other foreign countries cannot do that. They must keep the interest rate high and attractive and print cash more carefully in order not to devalue their currency. The US dollar, being a global reserve/trade currency, does not have that issue as much, as the dollar is in demand internationally. Thus, adding international bonds could help you get reasonable interest rates while US bonds’ interest rates keep falling.
For Stock:
Stocks tend to perform reasonably well if inflationary pressure does not create disruption in the economy. High, but not out of control inflation can be a positive factor in the stock market. However, the US stock market is currently experiencing it’s near highest valuation point in over 100 years of stock market history. The area the bubble is forming around is large growth-oriented fabulous and famous US companies, such as Google, Amazon, Walmart, UnitedHealth Group, etc…
So, consider these alternatives:
Mid/small cap stocks: We think it is wise to take some cash off the table from large company stocks and check out much neglected smaller size companies. While we hear mostly about the S&P and Dow Jones indexes in the news, the S&P and Dow Jones do not fairly represent the entire stock market. Those indexes mostly reflect the selective reality of large and famous companies, such as Walmart, Amazon, Coca Cola, and you name it. However, there are quiet and unrecognized companies that have survived multiple generations with strong cash flow generating capabilities. A good investing option is to use exchange traded funds, such as iShares S&P Mid-Cap 400 Growth ETF (NYSEMKT:IJK). IJK is an ETF that invests specifically in mid-cap growth stocks.
International stocks: International stocks look very reasonably priced and should be included as a hedge against overvalued US large cap stock, and as protection against growing inflationary pressure. The below chart shows how undervalued foreign stocks are relative to the US stocks in year 2021.
Finally, there are alternative investment classes, real estate investment trusts, commodities, and crypto currency. We do not see a convincing foundational logic to pursue commodities or cryptocurrency. Commodity prices have plummeted despite demand pick up from the current business expansion cycle. Revolutionary technologies to detect underground minerals and the ability to extract has been revolutionized especially since the mid-2000s. This has resulted in an overall commodity price depression over the last decade and we expect the downward pricing pressure to continue. Also, crypto currency, while earning fabulous returns over the past few years, does not have a justifiable investment thesis for us to make any comment. There is still no legitimate business or economical use other than it being just an “alternative” at this point.
That leaves the last asset class, real estate investment trusts (REIT). REITs are funds that have real estate investment properties as the underlying asset. Real estate’s tendency to perform well during inflationary periods has been proven consistent throughout history and in other countries as well. Unlike bond holders, land and property owners can increase rent as the value of currency decreases with inflation.
I hope this information was helpful. If you have any specific questions as to how to incorporate these asset classes to your investment portfolio, feel free to reach out to us.
Sarah and Ujae Kang,
Founders of UAK Diversified Wealth Management.
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Investment Advice from UAK on GameStop and Day Traders
Article Link: https://uakdiversified.com/blogs/f/investment-advice-on-gamestop-and-day-traders
We were told to sit down many times as children. However, we do not hear that as often as we grow older. Did we become sedentary? Possibly. But more often, it is because, as we grow older, we discover alternative ways to occupy our minds. Such as looking at social media, watching cable TV shows & sports, fishing, video game etc.… We spend enormous amount of time and energy to manage boredom.
However, a certain portion of the population can get into destructive behaviors when these mind occupiers are not satisfying enough and do not have moral guidelines. Such activities include using addictive substances, gambling, sexual fantasy, and some segments of day trading.
You got it. Day training is a real behavioral pattern that is often pursued to feel action and manage boredom rather than to earn money. Zero-commission trading brokerages effectively brought gamblers into the stock market. Day trading is a digitalized sporting activity whereas social media is digitalized fellowship. Just as people pay their valuable time and resources to participate in social media, sporting events and fishing etc., Also most of day traders lose money in the long run (i.e., spend money) for the experience of feeling volatility and thrill.
Nothing is quite new at its core concept, except that the scale has gotten more serious. Recently GameStop’s stock price went up by 1,500% in just days pushed by the Reddit community, an online social media organization, who made concerted buy trades with the alleged enemy being a few hedge fund managers who were betting the stocks would go down. Basically, they turned day trading into fantasy online football where sides were drawn by united small investors vs hedge funds. I am sure it was the thrill of a lifetime to participate in it and the mission to manage boredom was accomplished for a few days or maybe a bit longer.
As a real investor, we wonder what to make of this. Real investing is a very boring activity. Many times, it can appear going through specs of cars and electronics by looking at the financial statements and company profiles. Or when using funds, we consider price to earnings ratio, review sector exposure grid, beta level, correlations etc.… It might be worse than reviewing cars or electronics. Unlike cars or electronics, stocks will not even give you the fun of touching or playing with it. Real investing is a lot of waiting game, which does not help in managing boredom. Real investing requires disciplined patience with decisiveness.
By the way, I would like to add how we manage our boredom. Since our 4th boy just started walking, we picked up golf, fishing, and skiing. We have not picked up these activities in the last 2 decades while going through graduate schools, getting professional certifications, and working long hours. Ujae used to think golf and fishing were the most boring activities in the world. But we started anyway, since our boys loved them, and he grew into them. So, if you ever spot us golfing, fishing, and skiing, you will notice we are always together. We found activities to manage boredom while having health benefits and nurturing family/friends to be worth spending money for. We hardly see such values in day trading.
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Cryptocurrency not an investment but an exotic collatable. Financial Advice by Sarah Kang CFP
Full Article:
Link to the full article:
https://uakdiversified.com/blogs/f/cryptocurrency-bitcoin-financial-investment-advice
CFP: Cryptocurrency why it is not an investment but an exotic collatable. Financial Advice by Sarah Kang
per wikipedia...
A cryptocurrency (or crypto currency or crypto for short) is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.[1][2] It typically does not exist in physical form (like paper money) and is typically not issued by a central authority. Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems.[3] When a cryptocurrency is minted or created prior to issuance or issued by a single issuer, it is generally considered centralized. When implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database.[4]
Bitcoin, first released as open-source software in 2009, is the first decentralized cryptocurrency.[5] Since the release of bitcoin, other cryptocurrencies have been created.
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Current Unemployment Rate and Obamacare (ACA), UAK Diversified Market Insight Jan, 2019
UAK Diversified explains why the current unemployment rate is misleading thanks to Obamacare (Affordable Care Act). Massive amounts of the employees left the workforce as they became recipients of Medicaid. Those workers are generally low income earning and unhealthy segments of the population. For them, Medicaid expansion is a good motivation to stop working and leave the labor force permanently. As a result, the current unemployment rate is very distorted, because there are smaller amounts of workers available to fill the open positions.
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Should I do a Roth Conversion. When Roth Conversion make sense.
Please visit our original articles with visual illustrations. Links provided below.
https://uakdiversified.com/blogs/f/roth-conversion-financial-advice
There is a situation where a Roth IRA conversion is the clear choice and is worth paying the tax upfront to take advantage of its unique benefits. However, in most circumstances, a Roth conversion is not for most. In fact, we think “Roth conversion” is a hyped marketing term. Marketing materials with Roth conversion themes are frequently designed by big investment and insurance product companies to get high net worth investors’ attention, making them feel that they might be missing something big in their tax strategy. Due to complexity of calculation involved in deciding if a Roth conversion is beneficial, an unverifiable justification with a “trust the experts” mindset is typically given.
However, please remember that in most cases, having more in a Traditional IRA to grow and compound almost always overrides the other stated technical benefits. In my opinion, Roth conversions have been widely promoted by investment product companies and Internal Revenue Service, who stand to monetarily benefit from the transaction. An IRA must be liquidated to cash and tax withheld first. Then the remaining assets need to be reinvested in, usually, new mutual funds, new annuities, etc. All opportunities for more commission.
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Understanding the Federal Reserve, Stock Market Outlook for 2019, as of Dec 2018
We point out extreme pessimism in the equity market in December 2018. It points out that debt level is fairly benign and the earning perspective is strong. Alan Greenspan and Jay Powell are both in a similar situation where sound fundamentals of the economy can trick people to think that the economy is overheating. This video shows why federal reserve is not reliable.
Please learn more about how we could help you with your investment portfolio by visiting
www.uakdiversified.com
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www.uakdiversified.com
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