Investing

Should Robinhood Mirror Coinbase for Maximum Profits?

June 3, 2021 By Kathryn Vercillo Leave a Comment

Robinhood and Coinbase are two of the big names in cryptocurrency trading. In particular, these are the companies that crypto-trading newbies often find first. There are pros and cons to each. However, one of the biggest benefits of Coinbase in comparison to Robinhood is that it offers a wallet that allows for easy withdrawal of funds. Should Robinhood mirror Coinbase for maximum profits moving forward?

What Is Robinhood?

Robinhood is a “commission-free stock trading and investing app.” The app is popular among new investors interested in learning about stock trading for the first time. In particular, it appeals to people who want a quick-and-easy mobile solution to investing. Robinhood, as you can tell, emphasizes stock trading. However, you can also trade cryptocurrency through the Robinhood app.

What Is Coinbase?

Coinbase is “the easiest place to buy and sell cryptocurrency.” This is a mobile app solution for people who are interested in trading cryptocurrency. Coinbase launched in 2012. Initially, it was a Bitcoin trading app. However, today you can trade numerous forms of cryptocurrency through this app. Additionally, you can learn about different cryptocurrencies through their news sections.

Robinhood Vs. Coinbase

The primary difference between Robinhood and Coinbase is their emphasis. Robinhood emphasizes stock trading, although it offers cryptocurrency trading as well. Coinbase emphasizes, and in fact focuses entirely on, cryptocurrency. Therefore, if you’re interested in both stocks and crypto, then you might feel drawn to Robinhood. In contrast, if you want to learn about cryptocurrency and maximize investing there then you’d likely choose Coinbase. Since Robinhood does have that stocks edge, should Robinhood mirror Coinbase in terms of cryptocurrency then it might eventually be the better options.

Other Major Differences: Pros and Cons

Here are some of the other major differences between Robinhood and Coinbase:

Robinhood has a very limited number of cryptocurrencies. In contrast, Coinbase has dozens.
Furthermore, Coinbase allows you to trade your cryptocurrency. You can buy, sell, send, receive, and exchange money easily through the app. Additionally, you can easily transfer your funds to multiple accounts. In contrast, Robinhood only allows you to purchase altcoins, which you then must sell to cash out to an external account. Transaction options are minimal.
Coinbase has a lot of opportunities to help you learn more about cryptocurrency. In fact, you can earn cryptocurrency by watching videos on the platform to learn. Robinhood also has some learning tools. In fact, this is one of the ways that Robinhood mirrors Coinbase today. However, you’ll learn more about stocks than cryptocurrency.
Robinhood charges no commission fees. In contrast, Coinbase has arguably high fees.
Coinbase is a more global app. It supports use from people in over 100 countries. Robinhood, on the other hand, is for people in the United States.
If you’re interested in investing in gold then you can do so through Robinhood. Unfortunately, you can’t do that through Coinbase.

Should Robinhood Mirror Coinbase for Maximum Profits?

As you can see, there are similarities and differences between Robinhood and Coinbase. Both are digital apps that allow you to learn about and trade cryptocurrency. However, Robinhood has fewer cryptocurrency options whereas Coinbase is a leader in crypto trading for newbies and more advanced traders alike. On the other hand, Robinhood offers the opportunity to trade stocks and invest in gold.

Should Robinhood mirror Coinbase to maximize profits moving forward? If Robinhood were to keep, or even expand upon, their own strengths (stocks, particularly) as well as adopting Coinbase’s strengths in cryptocurrency, then it could certainly make it a forerunner in the market again. After all, Robinhood offers commission-free trading. Therefore, they could easily compete with Coinbase in terms of people interested in cryptocurrency trading if they offer both more cryptocurrencies and easier trading/selling within the app.

But, Is It That Simple?

It sounds fairly simple, of course. If Robinhood can compete with Coinbase in cryptocurrency while retaining its strong base in stock trading, then the company should profit. However, business is never quite that simple. What would it take in terms of investment and technology in order for Robinhood to make those changes? Would they truly be able to compete with Coinbase in terms of cryptocurrency? Or, instead, would they end up losing their edge in their own strengths while failing to take over the cryptotrading market?

One of the things that any company should keep in mind is that they’re on their own path. It’s all too easy to give in to the pressure to make everyone happy. When you see your competitors doing well in a specific area, of course you want to press forward in that same area. However, if that’s not your true strength, then it rarely works out. Whether or not Robinhood makes changes that make it more similar to Coinbase really depends on the company’s own values, mission, and plans for the future. It’s not a simple decision.

I’m New to Cryptocurrency, Should I Try Robinhood or Coinbase?

As of right now, there are similarities and differences to Robinhood and Coinbase. Should Robinhood mirror Coinbase in the future then it may be tougher to choose between the two. But as it stands, a newbie investor can easily consider a few key factors to choose between one or the other:

If you really want to learn about cryptocurrency, then you should choose Coinbase.
Moreover, if you want to have the most options available to you in terms of cryptocurrencies, then you should choose Coinbase.
However, if you’re just dipping a toe in the water and only plan to invest in major cryptocurrencies such as Bitcoin and Ethereum, then you might want to consider using Robinhood. After all, it’s commission-free.
Furthermore, if you want to combine stock trading and gold investing with cryptocurrency investments then you should choose Robinhood.

Of course, you could always download both apps. Then you could invest a little in each to see which one feels right for you.

What is your opinion? Should Robinhood mirror Coinbase for maximum profits?

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Companies That Offer Free Stock

June 3, 2021 By James Hendrickson Leave a Comment

Who is this article for?

People whose wealth building has stalled out and want a quick win.

People who want to get started investing but are lacking capital.

Anyone who wants more stock, which should be everyone.

For the past 100 years, owning stock has been one of the most long-term and reliable ways to build wealth. Stocks have performed better than almost all other asset classes and have provided better returns in almost all market conditions. High-net-worth individuals disproportionately own stock — and lots of it.

The saving advice team did a review of all the “free stock” offers in the blogosphere and selected four. These all require very little money to be invested in the platform, don’t charge monthly fees or trading costs, are legal (in that the brokers and securities are registered with the SEC), and actually deliver on the value proposition.

Why Are Companies Offering Free Stocks?

For starters, there is no such thing as “free stock.” These companies are basically offering you a trade. They want to build an investor base and are willing to pay you to do it. You are essentially trading your time and your participation in their platform. In return, you get stock and use of their platform to access capital markets.

How To Approach This Article

Good quality companies have a tendency to increase in value, especially if you reinvest in dividends. Our recommendation is to sign up for ALL of these companies, get the free stocks, and let the value compound. They’ll be worth significantly more in the future. For example, if you sign up for all four companies, you’d get maybe $40 worth of stock — possibly more. In five years, that would easily be worth double.

Robinhood

Robinhood is an investing app that’s popular among active traders because it allows them to make equity and options trades for free. The app doesn’t charge any maintenance fees or require a minimum investment either. This makes it a low-cost way to get started with investing.

As an added bonus, Robinhood will give free stock when a user signs up and links a bank account. The reality is you’re probably going to get something worth between $4 and $10. Robinhood has been mostly been giving away shares of companies that aren’t doing that well such as Limelight Networks, or Ayro, Inc.

Robinhood’s reputation took a hit during the late Gamestop craze, when small investors coordinated on online forums such as Facebook and Reddit to drive up the price of Gamestop, Inc. This caused hedge funds who were short-selling the stock to incur huge losses — a situation known as a “short squeeze.” About two days after this occurred, Robinhood stopped trading in Gamestop, Inc. It’s unclear why, but it’s possible the company did it to preserve their relationships with hedge funds involved in the Gamestop short squeeze. So while its model relies on small investors, it is not getting paid to serve the small investors’ interests.

On the other hand, Robinhood has lightning-fast transfers and trade execution. If you did spot an opportunity and wanted in on it right away, Robinhood is best of breed.

Firstrade

Firstrade is another discount broker that allows you to trade stocks, ETFs, mutual funds, and options for free. It also offers complimentary trade ideas and access to research by trusted firms such as Morningstar and Briefing.com at no cost.

Firstrade is a privately held New York-based brokerage firm. Firstrade was started in 1985 by John Liu to serve the needs of the Chinese American community in Queens, New York. Since Firstrade is private, not much has been written about it. It generally gets good marks for account setup, research material availability, and trade execution. Its customer service gets terrible marks.

Firstrade has been penalized several times by FINRA largely due to deficiencies in internal controls. In 2013, the company’s internal controls failed to notice potential stock price manipulation using its trading platform. FINRA investigated but ultimately concluded the failure was due to technical limitations in Firstrade’s internal reporting. Firstrade has since upgraded its internal computing and controls.

Firstrade is following a similar model as Robinhood. It wants to expand its investor base by offering free stocks for sign-ups. What’s nice about it is that it’ll give you free stock for signing up custodial and joint accounts. If you have children this will help them get started investing.

Dough

Dough LLC claims that it is what investing should be — unlimited commission-free stock trading, zero account minimums, and an easy-to-use mobile app filled with smart ideas. Dough, Inc. is an interesting combination of a trading platform and a media company.

Founded in 2018, the company is the brainchild of TD Ameritrade Alumni Tom Sosnoff. The main idea behind this company is to build a stock/options trading platform and marry it with Tastytrade, a financial-focused media network. What makes it different from the others on this list is the multimedia in its app — it offers a wide variety of videos and commentary.

Dough is for smartphones only. Users can download the trading app for either iPhone or Android phones. Sign-up is very easy. You’ll be asked some basic brokerage questions such as your name, address, Social Security number, net worth, and market knowledge. Account approval is usually granted in three days or less. Your free stock comes a few days after that.

The quality of the stock you get for a free sign-up is somewhat better than Robinhood. I picked up shares of a utility and a European bank. Both were worth about $10 and have good long-term potential.

Its FINRA profile is clean and doesn’t have any regulatory issues.

Public

Public.com is a Robinhood competitor just with a social networking component. The brainchild of entrepreneurs Matt Kennedy and Jannick Malling, the company was originally founded as Matador. Public is currently riding high on venture capital funding. According to Crunchbase, it has gained about $308.5 Million in five rounds of venture funding.

Public’s sign-up is pretty easy. You download the app and answer a bunch of standard questions. As part of the sign-up process, it will require you to link your bank account and move some money into its brokerage platform. You’ll also get to select which company you want to have a chunk of — you get about ten options to choose from. The good news is all the options are good. You’ll get shares in good quality companies. It will likely give you about $10 bucks worth of the company — a fractional share.

Public also has a clean regulatory bill of health.

Honorable Mention #1: Coinbase

Coinbase isn’t actually a stock – instead, it’s a cryptocurrency exchange. Coinbase is the most popular cryptocurrency exchange in the United States. It allows you to trade a wide variety of currencies including Bitcoin and Ethereum for a fee. The company also has a wallet app that enables you to securely store your holdings and shop at stores that accept cryptocurrency.

The way to maximize the value here is by signing up, collecting your $5 in bitcoin, and completing its rewards programs. The rewards program is interesting for two reasons. First, it’s worth maybe $20 or $30. Second, it’s an introduction to the world of cryptocurrency. Some of the concepts such as tokenization, blockchains, and distributed computing are amazingly energetic and fresh. Plus, signing up at Coinbase gives you access to cryptomarkets. It’s a bit like having a key that unlocks a new world.

The companies featured in Coinbase rewards are often companies that Coinbase, the brokerage, has invested in. So, they’re not offering rewards out of the goodness of their hearts, they want to build up demand and market awareness for cryptoventures they’re supporting. As with anything, caveat emptor.

Honorable Mention #2: Webull

Webull

Webull is an investing app that allows you to trade stocks, ETFs, and options for free. You can even buy and sell cryptocurrencies such as dogecoin and bitcoin on Webull, so it’s a great option for traders who want to dabble in alternative investments. However, the app doesn’t offer mutual funds or fractional shares, which is something to consider.

If you’re interested in signing up for Webull, you can get one free stock worth anywhere from $2.50 to $250 when you open an account. You can also earn a second stock worth up to $1,600 when you fund your account with at least $100. Realistically, you’ll get shares worth between $3 and $15.

You’ll get two stocks for your first successful referral and six stocks when your second friend signs up. For every referral you make after that, you’ll get an additional two free stocks.

Webull makes the honorable mention list because it has recently tightened up its offer. It is asking for a deposit of $100 before you get your two shares of stock. It used to issue shares for signing up, but our guess is its market position has improved so it is less aggressive about courting users. Now their offer is, you sign up and you get a single free share of stock. Then you have to deposit $100 to get your second share. It might be worth your time.

Webull’s desktop interface isn’t great and its customer service sometimes leaves much to be desired.

Sign up for all of these

All of these options allow you to get friends to sign up. Usually, the offer is if you get a friend to sign up, you’ll get another share of stock, and your friend will get one too. If you have a spouse or partner who is interested in personal finance, this is generally a good way to double the value proposition.

Do you know any additional sites where you can get free stocks? If so, please let us know in the comments below.

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Here’s Why You Should You Take Investment Advice from WSB

May 31, 2021 By Jenny Smedra Leave a Comment

The subreddit known as r/wallstreetbets has been consistently making headlines this year. Although it has been around for nearly a decade, it gained national prominence during the GameStop short squeeze and has continued to intrigue investors ever since. They employ high-risk strategies that many brokers and investors would never dream of. However, many of its community members have made impressive gains that leave many of us asking ourselves if we should be taking investment advice from WSB.

What is WSB?

For those who are unfamiliar with r/wallstreetbets, it’s a strange place…to say the least. If you scroll through its most popular posts, you will see members sharing their astronomical gains, crushing losses, and investment advice from WSB that goes against conventional wisdom. That’s because this subreddit is not your typical investing forum. It’s a place where amateur and veteran investors alike can discuss ultra high-risk strategies. They ignore the most fundamental rules of investing and make moves that even the most hardened investors cringe at because…YOLO! While some view it as little more than high-stakes gambling, others are taking signals from the community posts and making huge gains from risky investments.

From its inception, WSB has been a place for people to discuss high-risk trades and seemingly crazy investment strategies without judgment or lectures. That is, of course, unless they are referring to themselves. The self-deprecating and sometimes profane tone of the forum has become an important part of the community’s culture. Even though some despise its irreverence and lack of respect for the traditional rules of trading, no one can deny that WSB has played a significant role in recent stock trends.

What Are WSB’s Investment Strategies?

Instead of choosing well-known assets, WSB members throw caution and money to the wind to make risky trades or buy more volatile stocks. If you are new to the forum, don’t even waste your breath discussing the merits of bonds or risk mitigation. Community members know how insane their approach is, and they revel in the madness of it all. And while it may have begun as an obscure trading forum, WSB has grown into a virtual army with its own subculture and jargon. Its numbers swelled after the short squeeze on GameStop stock in January 2021 and made it wildly popular. The entire phenomenon put the subreddit in the national spotlight, and some investors starting taking their investment advice from WSB.

Unfortunately, many members of the subreddit acted on buy and sell signals too late and lost tons of money. I’m not just talking about the money set aside for investing. Some lost their entire life savings and mortgages in a matter of hours. The r/wallstreetbets forum is many things. The one thing all financial advisors can agree on is that the subreddit is not a reliable source for investment advice.

Yet, every day members share their gains and post the impressive returns they have earned from their risky strategies. Countless community members made thousands, even millions, during the GameStop short squeeze. In fact, one subredditor joined the billionaire club when it was all said and done. It’s hard to ignore posts from members barely in the 20s who could retire off their “tendies” while the rest of us slave away at our jobs and stick with tried-and-true investing strategies.

What Do Brokers Think of Taking Investment Advice from WSB?

Any financial advisor worth their salt should tell you not to trust investment advice you read online. This goes double when it comes from an online forum of novice investors with a penchant for high-risk investments. When I asked my broker his opinion of their investment strategies, he compared it to trusting social media or tabloids for your news sources. And he’s not wrong. Most of the time, advice from WSB involves more gambling than strategy.

But…Here’s Why You Should Take Advice from WSB

Although their strategies are unorthodox and extremely high-risk, there may be a method in the madness. A recent study conducted by two researchers from the Hasso Plattner Institute in Potsdam attempted to unravel the secret behind the success stories. Although some members have had staggering losses, particularly after the GameStop frenzy, the team may have uncovered a way to decipher when you should take investment advice from WSB and when you should ignore it.

In order to determine just how reliable WSB’s advice was, the German researchers created a portfolio based on the community’s most popular stocks and buy/sell advice from its members. And what they found was rather astounding. With the 20 stocks chosen from the subreddit’s posts and discussion boards, the WSB portfolio outperformed the S&P500. In fact, it grew 200% over the last three years and a shocking 480% in the past year alone.

The crux of the matter comes down to an investor’s ability to determine reactive signals from proactive ones. The reactive signals come immediately after a significant price hike or drop. Acting on these signals is how many of the subreddit’s “degenerates” lost so much money. However, the proactive signals turned out to be quite profitable. Therefore, if you know what buy/sell signals to look for, then you could make a killing.

The Fine Print

Although the results were promising, it all remains theoretical since the forum is still in its infancy. The convenience of technology has shown average Joes how easy it is to start investing with individual investing apps meaning more people will likely adopt their strategies. However, you cannot overlook the YOLO approach the WSB community has towards investments. Novice investors often overlook this and only see the community as a way to get-rich-quick. Unfortunately, many do not realize this until it’s too late and they’ve lost everything. If you aren’t prepared to lose it all, then steer clear of investment advice from WSB.

However, if you are looking to make some questionable choices with large sums of money, then you’ve come to the right place. Win, lose, or draw, WSB will always support high-risk moves.

Should You Get Your Investment Advice from CNBC?

May 26, 2021 By Tamila McDonald Leave a Comment

When you’re looking for investment advice, CNBC may seem like a perfect option. The news outlet focuses on topics related to business and investing almost exclusively, which makes it seem like the ideal choice. This question is, are the recommendations on CNBC sound? If you’re wondering if you should get your investment advice from CNBC, here’s what you need to know.

Separating Flash from Solid Advice

One of the main issues with turning to a television station for investment advice is that media approaches to information sharing often rely on flash and feelings. Not unlike clickbait titles on articles you see on social media, many of the lead-ins that are there to keep you tuned in are designed to invoke emotional responses.

In the world of investment advice, the emotion they target watchers with is usually excitement, fear, or a combination of the two, such as the “fear of missing out.” Some of the shows also try to be “entertaining,” featuring bright visuals, sound effects, or other triggers designed to keep a person engaged.

The issue is, the flash doesn’t mean the advice is solid. When market “gurus” – like CNBC’s Mad Money host, Jim Cramer, who is well known for his on-air antics – make market calls, on average, they are right less than half of the time. Jim Cramer’s accuracy rate during the analyzed period was just 47 percent.

However, even with the frantic approach, that doesn’t mean everything personalities like Jim Cramer share should be ignored either. Commonly, Jim Cramer offers some great recommendations, particularly when it comes to encouraging viewers to do their own research.

Often, when it comes to the fundamentals, CNBC does offer some stellar advice. Many of the hosts advocate for diversification, research, and making choices that align with your risk tolerance. All of that is positive. The problems usually only arise when it comes to specific stock recommendations, as many of the “experts” are wrong about as often as they are right.

The Risk of Hype

When a stock recommendation hits CNBC or other business channels, it can create a lot of initial hype. Many people believe they can rely on the advice, so they make investment decisions based solely on it.

The problem is, since a large group of viewers is getting the same recommendation simultaneously, this can lead to a significant uptick in activity. When that occurs, you get a heightened amount of volatility, so much so that it may unfairly or unjustifiably inflate or deflate the value of a particular investment.

If you hop onto the bandwagon, you may be buying or selling at a less than ideal moment. The price you end up with may not be an accurate reflection of what that investment would typically be worth, causing you to experience a greater loss or smaller gain than you would under different circumstances.

Dealing with the Onslaught

With business channels like CNBC, the sheer volume of information you’ll be subjected to can quickly become overwhelming. For television, stations understand they need to keep viewers engaged. Usually, a deep, methodical dive into an investment topic isn’t the way to maintain viewership. Instead, it’s rapid switching between new ideas that keep watchers glued to their seats.

Often, this means viewers are being given more information than they could reasonably manage. Any recommendations merely scratch the surface of what a person should know before making a decision about where to place their money.

But since there are so many recommendations, stopping to do your own research on all of them might not be practical, leading some viewers to skip that part and move their money based on the advice alone. To put it simply, this is never ideal, as it means investing in something without knowing the full story.

However, that doesn’t mean you can’t use the advice as a starting point. You simply need to focus on one or two of the presented options and then spend time digging into each one before you make a decision. That way, you can make sure it’s actually the right move for you.

Avoiding High Churn in Your Portfolio

Another issue with many business channels like CNBC is they don’t benefit from recommending the same investments over the long-term, even if they would be sound recommendations. Constantly promoting the same options isn’t going to keep viewers engaged, as they’ll soon learn what to expect.

To keep watchers intrigued, channels like CNBC need to mix things up constantly. As a result, they promote new investments frequently, often to the point where keeping up would result in a significant amount of churn in most portfolios.

When you’re constantly buying and selling, you aren’t necessarily coming out ahead. This is especially true if your broker has a fairly high fee structure. Additionally, it could wreak havoc on your taxes.

Again, this doesn’t mean any particular recommendation isn’t sound. Instead, it is simply that following every piece of advice could have ramifications, something that isn’t commonly addressed on CNBC.

By the Time It Hits CNBC, It May Be Too Late

In some – but not all – cases, by the time a stock recommendation comes rolling through a business channel, including CNBC, it may be too late to capitalize on certain investment options. At times, a stock makes the news because of a meteoric rise.

By the time that rise is noted in more mainstream media, average investors may not be able to capitalize on it. Now, if you’re a firm believer in doing additional research, you may be able to separate stocks with more potential from those that have hit a peak. However, even that can be tricky, particularly as news stories bring the stock to the attention of more people.

Should You Use CNBC for Investment Advice?

Overall, CNBC can have some solid investment advice. You can certainly use it as a resource. The thing is, it shouldn’t be your only source of recommendations.

The main issue is, you need to separate the good from the flash and the hype. At times, this isn’t easy, usually requiring additional research on your part.

Additionally, even a solid recommendation may not align with your investment strategy. Again, research can help you determine if it’s a good move for you.

If you want to use CNBC as one resource among many, you may be in good shape. Like with investing, diversifying your information sources is a smart idea. That way, you can get a more complete picture, increasing the odds that you’ll make the best decision for you.

Do you consider CNBC to be a good source of investment advice? Why or why not? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started. Check out these helpful tools to help you save more. For investing advice, visit The Motley Fool.

The Do’s And Don’ts Of Property Investment For Retirement

May 25, 2021 By Susan Paige Leave a Comment

No matter what age group you are when you’re reading this, it’s never too early to start thinking about your retirement. It may still seem so far away, but if you want to enjoy the rest of your life with financial freedom, you need to plan for it now. Remember that during your retirement, it’s time for you to enjoy—no more job to report to, which means more time, but also no more inflow. [Read more…] about The Do’s And Don’ts Of Property Investment For Retirement

Is It Inflation Or Fear of Inflation?

May 23, 2021 By Max Erkiletian Leave a Comment

You may read or hear the term “inflation fears” being used with increasing frequency. In turn, that raises the question of what we’re dealing with — is it inflation or fear of inflation?

What Is Inflation

Let’s start by defining terms. We will assume you know what fear is. On the other hand, you may not be sure about inflation.

Inflation is the increase in prices throughout the entire economy. Consequently, a rise in gas prices alone is not inflation. However, if food, housing, general goods, and gas prices jump together, you are dealing with inflation.

The primary measures of U. S. inflation are the Consumer Price Index (CPI), Producer Price Index (PPI), and personal consumption expenditure price index (PCE).

In April, the CPI jumped to 4.2 percent, its biggest 12-month increase since September 2008’s 4.9 percent hike.

Markets React

With one of the primary inflation indicators jumping, many wall streeters started selling. (Cue Chicken Little!). However, the Federal Reserve did not take the bait and stilled inflation fears by reasserting its stand against raising rates. The Fed has said repeatedly it expects “transitory inflation” as the economy reopens.

Fed Chair Jerome Powell has stated he does not see a need to tighten monetary policy until inflation runs above two percent for an extended period.

The central bank’s consistency calmed fears and stocks bounced back.

“Inflation is a process and not a one-time event,” said Chris Low, chief economist at FHN Financial told Reuters. “These bottlenecks are one-offs. The Fed will not consider action until it views price levels changes as permanent rather than temporary, something it does not consider possible until the economy is at full employment.”

Was April a False Inflation Positive?

There is an argument to be made that April’s CPI was a reflection of the anormal not the new normal.

Many areas seeing inflation in April’s CPI were the result of an economy recovering from the pandemic. About half of price increases came from four segments. They were: used cars, car rental, airfare, and dining out.

With more vaccinations and COVID-19 restrictions relaxing, Americans accelerated travel and leisure activities. As a result, there was a sudden burst of demand hitting a limited supply. The April CPI reflects the difference between a pandemic lockdown economy and a rapidly rebuilding economy.

Used Car Prices Lead the Way

“The index for used cars and trucks rose 10.0 percent in April,” according to the U. S. Labor Department. “This was the largest 1-month increase since the series began in 1953, and it accounted for over a third of the seasonally adjusted all items increase.”

Shortages

Like many industries, the rise in used car prices is the result of shortages.

The shortage of semiconductor chips has lead to an increase in electronics and automobile prices. With new cars in short supply, the demand for used cars has increased.

At the same time, shortages brought on by the pandemic have moved other prices higher. Car rental companies that drastically cut their inventories during the pandemic are now swamped with customers.

Travel bans and lockdowns lead to airlines cutting back and reducing staff. Meanwhile, restaurants went through the same process. Ramping up again takes time.

The elevated price of lumber has contributed to the rising cost of home purchase and home repair prices.

Is It Inflation or Fear of Inflation?

Shortages are often overcome with increased output. However, it takes time for services and products to catch up. As a result, some sectors, such as leisure, the automobile industry, and travel will recover in time. The question is, how much time?

The Fed’s criteria of two percent inflation over an extended period gives businesses time to recruit workers and ramp up manufacturing. However, it takes more time to grow a tree.

What To Do?

If Chair Powell is right and all the economy needs is a little time for supply to catch up with demand, all we need is patience.

However, some expenses are high regardless of inflation. The cost of education drives most college students into debt and medical expenses are the leading cause of bankruptcy in this country. Nonetheless, those costs may be considered systematic failures rather than inflation factors.

Safe Havens

If you are concerned that inflation is coming sooner rather than later, you might want to make a few moves to balance your assets.

If you have an adjustable-rate mortgage, you might consider locking in a low rate with a fixed-rate mortgage.
Floating rate bonds. As the name implies, the interest rate on these bonds fluctuate based on inflation. To get maximum diversity, you can invest in a portfolio of these bonds through mutual funds and ETFs.
Gold. Owning gold has been a favorite tactic of inflation bears for a long time. They like the fact that it holds its value. Again the best way to own gold may be through an ETF or mutual fund.

Caution

Some investments can get you stuck with low returns if inflation does not materialize.

Long-term bonds. Many investors favor these bonds for safety. They do protect principal but lose ground when interest rates take off.
Long-term CDs. Again, this is a popular investment for those seeking safety. Like long-term bonds, CDs protect your principal. However, if inflation accelerates, your CD will be left at the starting gate.

Conclusion

George Bernard Shaw said, “If all the economists were laid end to end, they’d never reach a conclusion.” And people thought he was trying to be funny.

A lot of analysts are talking about inflation. As a result, a lot of average investors are becoming concerned. However, the Fed, which is tasked with reining inflation, is advising patience.

If you’re confused about what to do, that’s understandable. For most of us, the right move is to keep our investments balanced and flexible. That means not getting locked into long-term fixed rates – unless your talking about your mortgage. It also means spreading investment risk through diversity. For most of us, that means finding a few mutual funds or ETFs that align with our financial goals and investing in them monthly.

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