to be a raise in interest rates because of the fear that it may trounce an already cooling housing market. That’s going to be the brake that is going to hold it in place. However, rising oil prices and competition for foreign investments are factors that could actually drive up interest rates.
As a nation, we are in so much debt to foreign countries we must make our debt load attractive to foreign investors. If foreign investors see that they can get a better return by investing in bonds of other nations, the only way we’re going to continue to draw that huge amount of foreign input — investments that are required to service our debt load — is to raise interest rates just to make them attractive. So we have some factors that are totally out of our control that could force the Fed to continue to raise interest rates.
BE: In this environment, what should investors and consumers do to preserve wealth?
Perry-Mason: When I sit down with my clients to talk about getting their budget together, I always tell them that we need to make some layoffs [in] our spending plan. Ford Motor Co., General Motors, and Chrysler are still making layoffs. Then what are you going to have to lay off? That’s when it comes to laying off the SUV, laying off different things in your spending plan so we can put money toward something else.
Hinson: When you are looking at higher costs, every investor, every consumer, needs to deal with the overall issue of how to manage those costs. Part of the solution, on a personal level, is to re-evaluate your budget.
From an investment standpoint, one strategy is to invest in hard assets. I believe investing in hard assets is a very solid way to invest your money when you are staring down higher prices [and] higher interest rates. Many of our clients are business owners. [They should] reinvest in businesses, expanding [them] to try to create more revenue.
If you are an employee working every day, you need to find a secondary source of income. One way to do that is to start a small business on the side. If you are
an employee and that’s where you are getting 100% of your income, you essentially [have] no tax benefits beyond mortgage interest, and that’s if you own a home. You can call a 401(k) plan a tax-savings vehicle, but ostensibly, all of the tax benefits accrue to those people who own businesses. [If you own a business], you can push some of your after-tax savings expense to pre-tax expenses, thereby lowering your overall cost structure.
Bryant: If there were going to be continued interest rate hikes and [your goal was] asset preservation, then you could move out of things that have given us a really good run in the last three years into more conservative things or underperforming things.
If you are a new client [of mine], you are talking about asset classes that have underperformed in the last business cycle