Financial advisors say it may be a good time for Americans to adjust their investments and retirement portfolios as inflation picks up again and the Federal Reserve postpones a much-anticipated rate cut. says.
The European Central Bank (ECB) signaled last week that its first interest rate cut could come in June, as the U.S. rate cut remains unchanged. Although Europe's economy is weaker than that of the United States, the latest interest rate cuts could trigger further stock market growth and benefit investors, advisers said. Conversely, high interest rates in the US may make US bonds a better investment.
“It's a great time to buy U.S. Treasuries with yields near their highest levels since October 2023,” said James Sahajian, managing director at Steward Partners' Ramapo Wealth Advisors. “I also think there is value in diversifying outside the U.S.”
European stock markets are already on the rise
The EuroSTOXX 50, made up of blue-chip European stocks, has outperformed the U.S. Dow Jones Industrial Average. As of Tuesday, the EuroSTOXX 50 had a one-year return of 15.77%, with a year-to-date increase of 8.75%, according to Bloomberg. This compares to 13.91% and 0.29% for the Dow Jones Industrial Average, respectively.
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“The economy is starting to expand a little bit in Europe, and (the ECB) could help with that by cutting interest rates a little bit,” said Derek Mizer, investment adviser and chief executive officer at Mizer Wealth Partners. .
“Unlike the US, there is room for interest rate cuts in Europe as there is little evidence of overheating that could reignite inflation,” Pierre-Olivier Grinchat, economic advisor and director of research at the International Monetary Fund, wrote in a blog post. mentioned in. The IMF's World Economic Outlook report was released on Tuesday.
The IMF also predicts that the European economy will expand, registering 1.5% growth by 2025, while US growth will gradually slow to 1.9%.
How will lower interest rates help the economy?
Central banks often lower interest rates to stimulate struggling economies, as long as inflation is kept under control. Lower interest rates mean lower borrowing costs, encouraging people to spend and businesses to invest. That, in turn, boosts corporate profits, production, production, and the economy as a whole.
The opposite is true if the central bank raises interest rates. Higher interest rates increase borrowing costs, curb spending and investment, and contribute to a strong economy and slower inflation. It also encourages people to save because they can get higher returns on their money.
evaluation
With U.S. stocks hitting new record highs, some financial advisers believe the market is overextended relative to European stocks.
“European companies are much more attractive based on valuation,” Sahajian said. “It's worth considering further.”
As of the end of March, Europe's STOXX 600 index was trading at about 15 times its one-year forward price-to-earnings ratio, while the U.S. S&P 500 index was trading at 26 times, according to LSEG data. A lower P/E ratio indicates a more attractive investment opportunity.
A Bank of America survey of global fund managers last month showed allocations to European Union stocks rose by the most since June 2020.
Stick to US Treasuries
Advisers said if U.S. interest rates remain high, investors should stick with U.S. Treasuries yielding about 5%.
The steady income also adds some stability to the portfolio, Mizer said.
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What will my 401(k) look like if I follow these steps?
Your stock and bond allocation should always depend on your risk tolerance and how close you are to retirement, advisors say. They say the higher your risk tolerance or the farther you are from retirement, the more you should weigh stocks.
Once you have determined your stock and bond allocation, you may consider taking 20% of your stock position and allocating it to a global investment fund, Mizer said.
For the fixed income portion of his portfolio, Sahajian prefers “barbells,” meaning investments in short-term and long-term bonds. He can benefit from high short-term interest rates while also locking in some long-term profits in case interest rates start to fall.
Mizer prefers 40% in 2- to 5-year bonds, 30% in 5- to 10-year bonds, and the rest in 30-year bonds. The different maturities give him the flexibility to reinvest the funds at different times and in different ways, such as buying new U.S. Treasuries.
But advisors said that with any retirement investment, consumers should consider where they are in life, what their goals are and their risk tolerance, before taking action.
Is Costco gold bullion a good investment?
Sahajian said gold prices are near record highs at around $2.400 an ounce, reflecting a “crisis of confidence.” “People are looking to other assets that will hold up even after uncertainty and upheaval,” advisers said, following the highest inflation in 40 years and the simultaneous wars in Ukraine and Palestine. People are said to be dissatisfied with the government and financial policy.
“Costco is a reliable source (for purchasing goods, including gold bars), and people are looking for other ways to invest,” Sahajian said. “Most cultures around the world, like India and Africa, value gold. So is it a good idea and is it liquid? Yes, it can be monetized someday.”
I'm not sure about Miser.
“Gold might have been a good idea three and a half to four years ago when you could buy low and sell high,” he says. “It's the opposite of buying gold now. Today you're buying at the highest price in a long time, which usually means the price is nearing its end.”
Costco's gold bars may be better purchased as a novelty item, he says.
Medora Lee is USA TODAY's money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
