8 Questions You'll Get at Holiday Parties This Year

2. Interest rates are on the way up. When do you think they will hit 8%?

There are people who fondly remember the high interest rates of the 1980s. They forget high inflation also came to the party.

What they're really asking: Can I stash all my money in a money fund, wait until rates hit 8% and then buy Treasuries and CDs, locking in high rates for a long time?

Consider this approach: “It’s unlikely rates will hit 8%, but I could be wrong. You need to understand what’s happening and why rates are rising. Inflation caught the Federal Reserve by surprise. They thought price rises were temporary because of built-up demand from when people were locked down, itching to buy stuff. They kept buying.

“Add on supply chain problems and prices went up more. The Fed raises rates to slow down the economy. Businesses that think a new project will deliver a 5% return on investment might start the project if capital costs 1%, but not if it costs 4% because interest rates went up. When spending slows, inflation should go down. Once the Fed sees inflation moderating, they will likely slow or stop their rate increases. Take advantage of these higher rates while you have them because interest rates move in cycles.”

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3. What do you think bitcoin will do next year?

People either love it or hate it. You do not know which side of the fence they are on.

What they're really asking: I don’t understand it, but everyone I know was buying it when it was going up. What should I do?

Consider this approach: “The problems with cryptocurrencies are they are volatile and difficult to understand. At the moment, cryptocurrencies are a speculative investment. No one knows what they are going to do. Clients who want to own some should treat it as a speculative investment that is a small part — not a major part — of their portfolio.”

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4. Why should I pay you? I can buy a stock index instead.

Many people have an aversion to paying fees. They feel a tracker fund or ETF gets them stock market participation without the expense.

What they're really asking: If I invest through you, you will charge me a fee. How do you add value?

Consider this approach: "Advisors bring a lot of value to the relationship, but that’s a subject for a longer conversation. Let's stick with your question concerning stock funds. A fund or ETF that tracks an index like the S&P 500 is a great place to have money invested, assuming the stock market goes up. Are you OK with riding it down too?

"A stock index like the S&P 500 is composed of 11 sectors. The index (sometimes called the broad market) is down 11.89%. You might assume all 500 stocks are each down that amount. No. Some sectors are up, others are down. While one investor is lamenting being down 11%, another celebrating because the Energy sector is up 60%. The overall index is down because sectors like Communication are down by 33%. Ideally, you want advice to help determine what sectors to overweight and underweight."

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5. What’s next for COVID?

The news media implies this isn’t going away, while in real life, it looks like life has returned to normal. You see fewer and fewer masks. The public is tired of being on high alert.

What they're really wondering: Please tell me COVID is in my rearview mirror and it’s not a concern anymore.

Consider this approach: "We do not know what is next for COVID. We do know our scientists have done a spectacular job developing vaccines that are 90% effective. They quickly develop boosters to counter variants. I think dealing with COVID is here to stay. We will get booster shots the same way we get flu shots. The government will dial up or dial down the precautions depending on the strength of new variants.”

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6. I think inflation is here to stay. What about you?

Prices are going up everywhere.

What they're really saying: I think people are getting greedy, pushing up prices and blaming it on inflation or supply chain issues.

Consider this approach: “The Federal Reserve is raising interest rates to slow economic activity. When rates go up, mortgages go up. When that happens, fewer people are buying houses because some don’t qualify with the lender. Builders are building fewer houses if demand falls. This brings down the price of lumber and other materials.

"Inflation was <a href="https://tradingeconomics.com/united-states/inflation-cpi" target="_blank">around 7.7% in October. The Fed’s target is 2%. That seems far off, yet for the 60-year period from 1960 to 2021, the average rate was 3.8% annually. The Fed has gotten pretty good at putting on the brakes.”

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7. What do you think the economy will do?

If the stock market is a leading indicator, a rising stock market requires a rising economy.

What they're really asking: I think there are serious problems out there. Can they be fixed?

Consider this approach: “We all want the stock market to go up. This means we need an expanding economy. When prices rise, low-cost providers jump into the game to build market share. The growth in the US market of the German supermarket chains ALDI and LIDL are a good example.

“Here’s another: online dating sounds like a clever idea. You can probably name two or three. How many do you think there are out there? 8,000. And remember when meal kits were new and Blue Apron ran ads? Today there are about 150 companies. Where there is a market gap or need, someone will step in to fill it. Others will follow. Creating new markets keeps the economy growing, even if older segments are having problems.”

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8. I cannot understand why it is so difficult to find employees. Where did all the people go?

Many people think this makes no sense.

What they're really asking: Unemployment is down, and everyone wants to hire. What happened to all the people who did those jobs before lockdown?

Consider this approach: “Several things might have happened. People died during the pandemic. Some people in the workforce decided to reconsider their priorities and took early retirement. Other jobs might have been done by seasonal migrant workers who just might not be here anymore.

"But where did all the people who did lower-skilled jobs go? Here is one possible answer. A 2020 New York Times article indicated Amazon hired at the rate of 1,400 new employees per day! Amazon has about a million employees in the US, making them the second-largest employer after Walmart with its 1.6 million employees.

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