7 Moves to Make in 2024: #3 Take Advantage of Longer Maturity

Nate Crosby |
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7 Moves to Make in 2024: #3 Take Advantage of Longer Maturity

The combination of massive stimulus and supply chain constraints lead to the highest inflation in decades in 2022. The consumer price index, which the Federal Reserve uses to measure inflation rose above 8%. In an attempt to tame inflation, the Federal Reserve began raising interest rates to make the cost of business and consumption more expensive. Rising interest rates effectively choke off spending, which slows down the economy and thus forces price increases to slow.  

If you remember back in 2022, with each FOMC meeting, interest rates were increased by ¼ percent at a time. This is because monetary policy is not an exact science. The full effect of each interest rate increase is often not realized for several quarters. Historically, our central bank doesn't have a great track record of selecting an interest rate level that is sufficient enough to lower inflation without causing the economy to experience a recession. When the economy slows down too much, the Central Bank reduces interest rates to stimulate the economy by reducing the cost of business and encouraging lending. In order to achieve the necessary effect, interest rates typically aren’t reduced slowly.  

In 2022, we had clients' short-term assets in 3-month treasury bills because every time they matured, we could reinvest them at a higher interest rate. Today we are not as confident rising interest rates will continue. In a recent meeting, the FOMC hinted at a potential interest rate decrease in 2024, assuming inflation did not begin to rise substantially again. If interest rates are reduced, money market accounts will be affected very quickly. Currently, many money markets are paying over 5%. While our clients benefit from the money markets in their account, we realize this party won’t last forever. As a result, we believe investors should be looking to increase the maturity on their treasury bills and notes. This we believe will allow investors to lock in yields longer at competitive rates if interest rates do decrease later this year. 

Homeowners Deductibles are Increasing

Across the nation, homeowners are becoming increasingly shocked by their homeowner insurance renewals. Along with prices going up, now deductibles are too. Some companies like, State Farm, are moving to a 1% deductible. This can be a bit sneaky because 1% doesn't sound like much, but for many people its more than they want to pay for a deductible during a claim. Consider a $350,000 home would have a standard deductible of $3,500. As the inflation guard increases the coverage for your home, it also increases your deductible. When we help a client with health insurance, the most important thing we want to know is "What is my max out of pocket expense?" Will you be able to pay for worst case scenario? We want to do the same thing with your home insurance. Know your deductible before the claim happens.

Questions? Contact us.

 

Disclaimer: Crosby Advisory Group, LLC is a registered investment advisor. This newsletter is for informational purposes and should not be taken as direct investment advice without knowing your individual situation. Investing involves risk including potential loss of principal. CAG Marketing is a subsidy of Crosby Advisory Group and provides custom marketing strategies for small to mid size businesses. Our Property and Casualty Insurance is issued and serviced through NMD Insurance. Crosby Advisory Group, LLC has ownership interest in NMD Insurance.