What Happened?
Today the Federal Reserve announced it will cut the benchmark rate to between 0% and 0.25%. On top of this, the Federal Reserve has said it will proceed with $700 billion in asset purchases (quantitative easing)
This is an important milestone in that the only additional tools the Federal Reserve now has to curb further depression in the stock market and slowing of the economy due to Coronavirus is to either:
- Push the benchmark rate into negative territory
- Introduce additional quantitative easing
Focusing in on this change only, and not the other stimulus the Federal government is pursuing, indicates that there is a large amount of fear about the economy.
What should you do now based on these changes?
Refinance
If you have an existing home loan chances are very high at this point you will be able to refinance your loan for a lower interest rate (more than 1% of your current rate) which would make it financially worth the closing costs.
Figure out to do with your cash
0% benchmark rates and increased government spending through stimulus measures means your cash is at risk of devaluation.
Commodities
Consider investing in alternative forms of wealth including gold, silver, platinum, palladium, rhodium, and consider diversifying with some cryptocurrencies such as bitcoin or etherium. Last time quantitative easing was introduced and implemented gold prices more than doubled from $800/oz in 2009 to over $1800/oz in 2011. Today gold stands at $1544/oz. Gold isn’t so much a way to make huge returns rather a way to store value, but a tool nonetheless. Silver went from $10/oz to over $45/oz in 2011. Same concept applies except silver is more volatile, less expensive, and more abundant. Also silver oxidizes, unlike gold.
Equities
Consider investing in companies that can weather a Coronavirus instigated economic adjustment that are on discount after our stock market rout of the past few weeks. Don’t dump all your cash into the market immediately, but start moving money over time and pick up some bargains. Anyone who used this strategy in 2009 would be looking good today. Be careful of companies in high risk industries in the current environment. Casinos, resorts, cruise, and travel companies come to mind as high risk investments. Secondary companies that could share some of that risk include airplane manufacturers, and restaurant franchises that aren’t tuned for home delivery, and theater companies.
The no-brainer at this point is the refinance. Others are optional, and carry risk.