Recently, expectations of tightening monetary policy have increased as the global economy recovers and inflation rises. At its September meeting, the Federal Reserve hinted that it could begin tapering its $1.2 trillion-a-month asset purchase program by the end of the year. The European Central Bank (ECB) also announced in September that it would reduce the size of its emergency bond purchase program (PEPP) from next quarter. China's central bank (PBOC) continued to implement normalized monetary policy in September, without adopting easing measures such as RRR cuts or interest rate cuts.
These changes in monetary policy are undoubtedly a huge challenge for people with large amounts of cash. Cash will continue to depreciate in an inflationary environment, and the tightening of monetary policy will lead to higher market interest rates, which in turn will affect the prices of assets such as stocks, bonds, and real estate. So how can people with large amounts of cash cope with the economic situation over the next two years? In fact, don't be too anxious, as long as you do the following well, you can protect your wealth.
1. Rational allocation of assets
People with large amounts of cash in their hands, in the face of the dual pressure of inflation and tightening monetary policy, cannot blindly hold on to cash, nor can they blindly chase high-risk and high-yield investment varieties. Instead, we should rationally allocate assets according to our own risk appetite, income level, consumer demand and other factors to achieve the preservation and appreciation of wealth.
Specifically, assets can be divided into three parts: safe reserves, sound investments, and growth investments.
- Safety reserves: These assets are mainly used to cope with daily life and emergencies, such as deposits, monetary funds, short-term financial management, etc. The goal of safe reserves is to guarantee liquidity and security, not to pursue high yields. In general, the size of the safety reserve should be able to cover living expenses for 6 to 12 months.
- Sound investment: These assets are mainly used to resist inflation and obtain stable income, such as government bonds, corporate bonds, high-quality stocks, gold, etc. The goal of sound investing is to ensure the stability of principal and income, while outperforming inflation. In general, a sound investment should account for 50% to 70% of total assets.
- Growth investment: This part of the asset is mainly used to obtain high returns and share the dividends of economic growth, such as emerging industry stocks, entrepreneurial projects, digital currencies, etc. The goal of growth investing is to pursue high risk and high return while diversifying risk. In general, growth investment should account for 10% to 30% of total assets.
Through the reasonable allocation of assets, people with a large amount of cash can achieve asset balance and optimization in different market environments, avoiding excessive losses or missed opportunities due to the fluctuation of a single asset.
Second, flexible adjustment strategies
People with a large amount of cash, after asset allocation, can not once and for all, but according to market changes, flexible adjustment of strategies, timely grasp opportunities and avoid risks.
Specifically, the trend and trend of the market can be judged according to the following aspects:
- Inflation level: The level of inflation is an important factor affecting monetary policy and asset prices. Generally, when inflation is above the central bank's target, the central bank takes measures to tighten monetary policy to curb inflationary pressures. This causes market interest rates to rise, which in turn affects the prices of assets such as stocks, bonds, real estate, etc. Conversely, when inflation falls below the central bank's target, the central bank will take measures to ease monetary policy to stimulate economic growth. This causes market interest rates to fall, which in turn raises the price of assets such as stocks, bonds, real estate, etc.
- Economic growth: Economic growth is an important indicator of economic vitality and potential. In general, when economic growth is strong, corporate profitability and willingness to invest improve, as does consumer confidence and spending. This drives demand and prices for assets such as stocks and real estate. Conversely, when economic growth is weak, corporate profitability and willingness to invest are reduced, and consumer confidence and spending are reduced. This depresses the demand and price of assets such as stocks and real estate.
- Policy changes: Policy changes are important factors that affect market expectations and sentiment. Generally speaking, when policy changes are conducive to economic development and social stability, the market will have more confidence and optimism about the future. This will promote the price of assets such as stocks, bonds, gold, etc. Conversely, when policy changes are detrimental to economic development and social stability, the market will have more worries and pessimism about the future. This causes the price of assets such as stocks, bonds, gold, etc. to fall.
By flexibly adjusting strategies, people with large amounts of cash in their hands can dynamically manage and optimize assets in different market environments, seize opportunities and avoid risks.
Third, maintain a rational attitude
People with a large amount of cash, after asset allocation and strategy adjustment, should also maintain a rational mentality, do not be swayed by market fluctuations, and do not be affected by their emotions.
Specifically, there are several principles that can be followed:
- Don't be greedy: Greed is an investor's worst enemy. When the market rises, it is easy to be driven by greed and want to make more profits. But doing so often leads to buying high and selling low, or chasing bubbles. Therefore, when the market rises, it is necessary to lock in profits in time and do not overly pursue high returns
- Don't be afraid: Fear is another enemy of investors. When the market falls, it's easy to get caught up in fear and want to avoid bigger losses. But doing so often results in selling low and buying high, or missing opportunities. Therefore, when the market is falling, stay calm and do not blindly sell.
- Don't blindly follow: Blind obedience is a common misconception among investors. When the market is lively, it is easy to be influenced by the words and actions of others and want to follow the trend of investment. But doing so often leads to buying overvalued or undervalued assets, or falling into scams. Therefore, when the market is lively, you must have your own judgment and do not follow the trend.
- Don't be paranoid: Paranoia is an Achilles' heel for investors. When the market goes against your expectations, it's easy to stick to your point of view and want to prove yourself right. But doing so often leads to missed turnarounds, or increased losses. Therefore, when the market is contrary to your expectations, you should adjust your strategy in time and do not be stubborn.
By maintaining a rational mindset, people with large amounts of cash in their hands can achieve stability and growth of assets in different market environments, avoiding unnecessary losses or missed opportunities due to uncontrolled emotions.
IV. Summary
People with large amounts of cash in their hands face the dual pressures of inflation and monetary policy tightening over the next two years, but they should not be too anxious. Challenges can be met by doing the following:
- Rational allocation of assets to achieve the preservation and appreciation of wealth
- Flexibly adjust strategies for dynamic asset management and optimization
- Maintain a rational mindset to achieve asset stability and growth