Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back, David.
David Nelson:
Thank you for the invite. Appreciate it.
Brandy Auterson-Hurst:
So with interest rates a major topic of discussion recently, what are you seeing in the data that is worth watching?
David Nelson:
Well, interest rates seem to be the discussion points every week. I apologize, folks out there, but they’re really important. The impact that this can have as far as on various investments, they don’t exist in a vacuum. And so because of that, it now basically affects different investments, different ways. So we need to look at stocks, we need to look at bonds. We need to look at cash type investments and say, what makes the most sense at this point in time. So the chart that I have today is one of these that it’s a tool that we use as far as to be able to compare. It’s called the Fed model. Now, not because it’s basically used by the Fed and this is the only tool that they use, but that’s the name that’s been applied to it since the nineties. And what it does is compare stock earning yields to bond yields and when we see it, and if you look at the right-hand side of this chart, what it’s showing is the stock earnings yield is now lower than the bond yields.
Generally speaking, you don’t see it as you can tell from the prior years if you move to the left there, it’s a pretty rare event that takes place and when it does happen like it has here recently. The bottom line is, this isn’t necessarily a guarantee, but this generally a pretty tough environment as far as for stocks to outperform in this environment.
Brandy Auterson-Hurst:
What could this mean for viewers making investment decisions?
David Nelson:
May not mean anything, but it does suggest that long-term stocks and investments like that, that look at interest rates that are big, big variable, could struggle in the foreseeable future.
Brandy Auterson-Hurst:
All right. Thanks for your insight today, David.
David Nelson:
Thank you.
Brandy Auterson-Hurst:
If you missed any of our discussion, we’ll make it available for you on ourquadcities.com.
Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.