The final few months of 2021 don’t appear to be going quietly. It seems like every week there’s more financial and economic news to discuss and we’ve gotten a lot of questions from clients about what’s happening and what it means for planning.

That’s why we decided to take some time on the podcast to discuss the latest news. It can be challenging to keep up as things move at a pretty quick pace so hopefully, this episode can bring you up to speed.

The first thing we want to discuss is the news that the Federal Reserve plans to taper the pace of bond purchases. What does this mean? Well, keep in mind that the Federal Reserve is a giant bank run by the government and treasury. They are able to buy bonds in the marketplace, which can change the way things trade.

So if the Fed is buying bonds, it’s raising the price of bonds and lowering the interest rates simply by supply and demand principles. When they slow the rate at which they’re buying bonds, it lessens that demand, and rates begin to go back up. Bonds and interest rates are similar to a see-saw so if one is going up, the other is going down.

The Fed’s goal is for there to be a minimum impact on rates but that all depends on other outside factors. That’s why it’s always a great reminder to make sure you have some of your money in a safe place that won’t be impacted by the fluctuations of the market. And that’s also why we’ve been finding bond alternatives for the safe money our clients have.

The other big news recently was the 5.9% Cost of Living Adjustment that’s taking effect in 2022 for Social Security. The good news about this COLA is it means a retiree’s benefit check will increase each month. The bad news is prices are up for many of the goods and services we purchase every day.

This inflation is also hitting us pretty hard because of supply chain issues. Prices are going up as demand is rising and suppliers aren’t able to meet those needs. When you think about investing, remember that you have to build a portfolio that can outpace inflation in the future so that you don’t lose buying power over time.

There’s a lot to be paying attention to right now so make sure you spend some time with your advisor to see what adjustments you might need to make.

1:01 – Tapering the pace of bond purchases

4:13 – Why interest rates go up

5:43 – Do you have mutual funds in your bonds?

6:57 – Supply chain issues and inflation

8:35 – Mailbag question on buying a boat

10:21 – Mailbag question on planning for a grandchild

13:00 – How the process usually works for people