Market Update – 12/10/2021

Inflation rose 6.8% from the same period last year according to the Consumer Price Index (CPI) for November released on Friday. This marks the fastest increase since 1982, with 12-month CPI reading staying above 5% for five consecutive months. The impact of Omicron is still unknown and remains to be observed.

Inflation is a lagging economic indicator, not to be used to predict future price changes. We reasonably expect rents to continue rising for a period in the future (accounting for one-third of the CPI). Meanwhile, the prices of many commodities (including oil prices and food) have already fallen.

Even if without severe inflation, money deposited within a bank will depreciate. If CPI increases by just 2% a year, the purchasing power in 20 years will be only half of what it is today. Leaving money in the bank for a long time is not a wise choice.

It is enough to keep six months of living expenses in cash. Too much “lazy” cash is harmful and unnecessary. Although the market may be at a high point, it is still possible to consider using idle funds to invest and earn higher returns than banks, while maintaining risk control at the same time. For example, our conservative strategy has an annualized return of approximately 6% in the past two years, but only fell 4% in February and March 2020. This strategy is suitable for those with an investment period longer than six months.