The Absolute No. 1 Rule of Investing

Andy Snyder|June 2, 2022

Janet Yellen was wrong.

We knew. You knew it. Anybody with a pulse knew it.

But until recently, the keeper of the nation’s bank account said inflation would pose just a “small risk” to the nation’s economy.

Meanwhile, we now face the fastest surge in prices since the inflation crisis of the 1970s… and some $7 trillion in market value has been wiped away.

She messes up… you pay.

“I think I was wrong then about the path that inflation would take,” she said on Tuesday.

“As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn’t – at the time – didn’t fully understand, but we recognize that now.”

Golly… whodathunkit?

What else is so obvious that our so-called leaders are blind to it?

Dare we even ask?

Our economic enemies must be drooling.

Let’s turn to our mailbag and hear from some folks who aren’t so dumb.

Thank you for sharing this loyal, virtuous and dedicated message. It definitely made my whole existence worthwhile and I imagine thousands of others! Thank you for your brilliance and kind and caring loving heart for our nation and its people! God Bless You, Andy! – Reader D.B.

See… our readers are smart!

But seriously, we got a ton of responses to our Memorial Day message. It shows that the backbone, nay, the heart and soul of this nation is still alive.

The good far outnumber the bad.

Now we just need to make sure our voices are louder.

On to an important investing topic…

In today’s letter, your graphic of 10-year Treasury real yields shows an actual real yield of less than 0.5%. I have always considered that real yields are the present market rate of the security minus the inflation rate. That would give us a negative real yield of more than -5% for the 10-year Treasury. Am I wrong? – Manward Letter subscriber L.E.

You’re sort of wrong.

Here’s the chart L.E. is referring to. It’s from Tuesday’s update to our tens of thousands of Manward Letter subscribers.

If you’re unfamiliar, real yields give us a sense of what’s left of a payout after inflation takes the “devil’s cut.”

Or is it “Yellen’s cut” these days?

In this case, we’re looking at the key 10-year Treasury (which currently yields about 2.85%) and subtracting the rate of inflation from it.

With inflation running at about 8% currently, L.E.’s assumption is that the real yield should be around -5%.

Three minus eight, after all, is negative five.

But that 8% figure is the current inflation pace. We can’t use today’s figure when looking at a 10-year bond. We must use the expected average rate of inflation over that period.

That’s derived from the futures market and the gap in yields between inflation-protected and traditional bonds.

That figure, as the math tells us, is about 2.5%.

In other words, despite the current surge in prices, the market believes the average inflation rate over the next decade will be much lower than it is now – just over the Fed’s preferred level of 2%.

That’s the rub of this indicator. It allows us to put our assumptions against the market’s best guesses.

If we think inflation is going to be hotter than that 2.5% figure (we do!)… then money is even cheaper than it looks. Borrowing at today’s rates is a good deal.

That’s the key to all of this. It’s why we study real yields so much. They are the very best gauge of the true cost of money.

When yields are negative, it pays to borrow. When real yields turn positive, the cost of money rises… and companies and investors act accordingly.

Using any figures… money remains cheap right now.

Good question.

One more…

I’m looking for something to park IRA money into – what would you suggest? The IRA account we now have is with Vanguard, and they recently became brokers and are charging an arm and a leg to manage our account. Any help you could provide would be very welcome. – Reader M.M.

Oh boy, there’s a lot here.

First… Vanguard.

We’re not sure what M.M. means by “they recently became brokers.” That could mean a lot of things, so we won’t assume anything.

But if Vanguard is charging too much… find somebody new.

Here’s the absolute No. 1 rule of investing: Know where your money is going.

If you don’t fully understand your fees or the service you’re getting, ask questions until you do.

If you don’t understand what you’re paying for, you’re almost certainly getting ripped off.

We’re not saying Vanguard is purposefully being deceitful. That’s almost certainly not the case. But it may be charging for things that aren’t needed.

As for where to park IRA money…

That’s not a question for some bald dope you found on the internet. We don’t know your personal circumstances, your time horizon… or any of the other important stuff. We’d love to share our ideas and market commentary, but it’s key to get your foundation built before going any further.

Know what your broker is up to. Know where you want to go. Then dig into the deeper ideas – and, yeah, we’ve got a few.

We’ll pull the engines back to idle, slide into the dock and tie up this old floating jalopy with some wise words…

Great article, great insight that is rarely heard nowadays! We need more common sense like this and definitely less big government. Like President Reagan said, if the government is big enough to give you everything, then they are also big enough to take everything! Keep up the good work! – Reader T.L.

Yep… see above.

Yellen and her pals screwed up, and we’ve all got less because of it.

Keep the questions (and compliments!) coming. Send them to mailbag@manwardpress.com.