Rick Rule, a famous investor, says that the Fed won’t keep raising rates aggressively, even if it would prevent “amazing damage.” Here are three places he thinks are worth your money.
The Fed is raising interest rates quickly to try to stop inflation from getting out of hand.
But legendary investor and former president and CEO of investment fund Sprott U.S. Holdings Rick Rule says that things may not go as planned for America’s central bank.
He told Stansberry Research earlier this month, “I think they’ll back out.”
“A period of real interest rates would definitely stop inflation, but it wouldn’t stop inflation until it did a lot of damage to different balance sheets.”
Rule is worried that the economy won’t be able to handle much higher interest rates. This isn’t the first time he’s said this.
In an interview with MoneyWise earlier this year, he said, “I don’t think the broad equity market can handle multiple rate hikes.”
Rule doesn’t say to give up on stocks all together. Here are three things that the super investor still thinks have potential.
Don’t forget about Precious metals
Prices at the store are going up at the fastest rate in 40 years. Rule doesn’t think that the rate of inflation will slow down soon, even though the Fed is tightening.
He told MoneyWise that he thinks prices will keep going up for most of the rest of the decade.
Rule says that if you want to keep your purchasing power, you should buy gold and silver. Unlike fiat money, gold and silver can’t be made out of thin air.
“I think an investor is making a huge mistake if they don’t have some of their wealth in precious metals or precious metals stocks,” he warns.
A bullion shop is a place where you can buy real gold and silver. You could also buy stock in companies that make precious metals.
Rule suggests that investors who are just getting started in the sector look first at the big names like Barrick Gold (GOLD) and Wheaton Precious Metals (WPM).
“The biggest and best companies in the space enjoy the first part of a gold bull market, which is the most predictable part of a gold bull market.”
He also says that when small investors put money into the market for precious metals, it doesn’t go to the small, risky companies. “Barrick takes it.”
Rule also likes Warren Buffett’s idea of investing in “price-makers,” which are businesses that can easily raise the prices of their goods and services without hurting demand.
Rule says that Buffett has been saying since the 1970s that there are businesses that are so good that they can set their own prices.
He gives the example of Apple.
Early last year, Apple’s management told the public that the company had more than 1.65 billion active devices, including more than 1 billion iPhones.
Even though competitors’ devices are cheaper, many people don’t want to leave the Apple ecosystem. That means that if inflation goes up, Apple can charge its customers around the world more without worrying too much about a drop in sales.
But Rule doesn’t say that people should buy Apple.
Instead, he suggests the exchange-traded fund ProShares S&P 500 Dividend Aristocrats ETF as a way to get a good look at what he calls “global dominators” (NOBL). NOBL owns S&P 500 companies whose dividends have gone up for at least 25 years in a row.
Rule says, “Over a very long period of time, [the fund] has shown itself to be a very effective way to do more than just keep your purchasing power. It has also shown itself to be a very effective way to add to your wealth.”
Since October 2013, when NOBL started, it has given annualised returns of more than 12%.
When prices are going up quickly because of high inflation, it might not make sense to keep a lot of cash on hand.
But Rule says that’s exactly what you should do.
These days, savings accounts do pay almost nothing. But Rule says that having cash lets you take advantage of times when there isn’t enough liquidity.
“I learned something back in 2008,” When I ran into that crisis with a lot of cash, it gave me the courage and tools to take advantage of the situation instead of letting it take advantage of me.
Since the global financial markets are likely to stay volatile in the near and medium term, investors with a lot of cash won’t run out of chances to buy.