Fund legend Rick Rule says the Fed will stop raising rates aggressively to prevent “amazing damage”. Here are 3 spots he likes for your money
The Fed is aggressively raising rates to tame raging inflation.
But according to legendary investor Rick Rule – former president and CEO of investment fund Sprott US Holdings – things may not go as planned for the US Federal Reserve.
“I think they’re going to back down,” he told Stansberry Research earlier this month.
“If we had a period of real interest rates, that would certainly cure inflation, but it wouldn’t cure inflation until it did amazing damage to various balance sheets.”
This isn’t the first time Rule has raised concerns about the economy’s ability to handle significantly higher interest rates.
In an interview with MoneyWise earlier this year, he said, “I don’t think the stock market as a whole will be able to take multiple rate hikes.”
The rule doesn’t suggest bailing out stocks outright. Here’s a look at three things the superinvestor still sees opportunity in 2022.
Do not miss
Consumer prices are rising at their fastest rate in 40 years. While the Fed is tightening, Rule doesn’t think inflation will slow anytime soon.
“I think we’re going to see prices continue to rise for most of the rest of the decade,” he told MoneyWise.
To maintain your purchasing power, Rule points to gold and silver, which cannot be printed out of thin air like fiat money.
“I think an investor who doesn’t have a portion of their wealth in precious metals or precious metal stocks is making an extraordinary mistake,” he warns.
You can buy physical gold and silver at your local bullion store. Or you can buy shares in companies that produce precious metals.
For investors getting into the sector, Rule suggests looking at big names like Barrick Gold (GOLD) and Wheaton Precious Metals (WPM) first.
“The first part of a gold bull market, and the most predictable part of a gold bull market, is enjoyed by the biggest and best companies in the industry.”
He adds that when money pours into the precious metals market from retail investors, it doesn’t go to the small speculative names. “It goes to Barrick.”
In building an inflation-proof portfolio, Rule also likes Warren Buffett’s idea of investing in price makers: companies that can easily increase the price of their products and services without jeopardizing demand.
“Buffett pointed out back in the 1970s that there are companies that are so great they have pricing power,” Rule says.
He cites Apple as an example.
Earlier last year, Apple’s management announced that the company’s active installed base of hardware has surpassed 1.65 billion devices, including over 1 billion iPhones.
While competitors offer cheaper devices, many consumers don’t want to live outside of the Apple ecosystem. This means that as inflation rises, Apple can pass higher costs on to its global consumer base without worrying too much about a drop in sales volume.
But Rule doesn’t advocate buying Apple.
Instead, he proposes a representative sample of what he calls “global dominators” with the exchange-traded fund ProShares S&P 500 Dividend Aristocrats ETF (NOBL). NOBL owns S&P 500 companies that have paid rising dividends for at least 25 consecutive years.
“[The fund] has proven to be a very effective strategy over the very long term for maintaining more than just purchasing power to grow your wealth,” says Rule.
Since NOBL’s inception in October 2013, it has posted annualized returns of over 12%.
At a time when high inflation is rapidly eroding purchasing power, having a pile of cash on hand might not make sense.
But that’s exactly what Rule recommends.
Sure, savings accounts pay next to nothing these days. However, Rule says that cash gives you an opportunity to take advantage of moments of illiquidity.
“I learned a lesson a few years ago in 2008. When I got into this crisis well paid, the money gave me both the courage and the tools to take advantage of this circumstance instead of being taken advantage of.”
With global financial markets likely to remain volatile in the short to medium term, well-funded investors will not be short of buying opportunities to take advantage of.
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This article is informational only and should not be construed as advice. It is provided without any guarantee.