We are living in a period of intense and frequent commentary on interest rates and inflation from the media and market commentators, which is having an effect on investors - everyone is expecting interest rates to go down and the question has really become, when?

We think investors should be asking different questions.

1. When investing: Ask yourself, am I investing in a strategy that is sound and sensible for the next five to seven years? How will this strategy behave when an economic slowdown happens, which is not a question of if - we know economic slowdowns happen and we also know that they absolutely can’t be timed. We also know that solid and disciplined investment strategies weather economic storms better than strategies that are stretching for short-term gains. Don’t chase hot sectors.
    
2. When thinking about debt levels: Ask yourself, are my debt levels sustainable and can I comfortably handle the payments if my income drops and/or if interest rates rise? This is stress testing your situation beforehand, and it is more useful than taking on debt without any forethought regarding a worst-case scenario. It also makes you resilient if the worst happens to transpire and it makes you even stronger if things just stay the same. It’s when the “unexpected” happens that people can feel financial strain, so prepare for that (take your umbrella with you in case it rains instead of trying to predict rain).
    
3. When thinking about inflation: Instead of wondering if inflation is going up or down, or which inflation measure to watch (it seems like there are more every week) we suggest focusing on a few simple truths:
   • The last 100 years have seen the value of a dollar go down 95%
      
   • This trend will likely not change
      
   • Inflation is a silent tax for which you don't receive a tax collection notice, so most governments are not completely averse to it as long as it doesn't get totally out of control
      
   • Your best protection against inflation if you’re working is your value in the marketplace, and for your investments it’s to own and invest in scarce property or companies that can raise their prices, which is often signaled by stocks that pay increasing and growing dividends
      
4. When thinking about buying a home: Ask yourself if you can afford the total cost of ownership: That includes the mortgage payment, taxes, insurance, utilities, maintenance on things that are going to need repairs, and renovations. Don’t bank on rates going down as the only scenario under which you can afford your home - that is a very risky bet.

Conclusion: In simple terms we suggest investors focus on what is, not what they hope things will be. We also suggest that overfocusing on day-to-day measures of anything has been shown, time and again, to be unproductive and ineffectual. Long-term trends are much more telling and useful as an analytical tool, and one of the most important long-term trends at work today is the magnificent compounding power of small incremental productivity improvements over time. We will talk more about that next month.

Have a great April!

Randy, Ian, and Harrison