If you pay attention to the financial press, a few investing themes have already emerged in 2022 that could continue to impact markets throughout the year. Strategic allocators are positioning their portfolios to benefit from current economic conditions. Here are a few ideas about where to invest $100k in 2022.

Dividend Stocks

After steady growth in 2021, the stock market is off to its worst start of the year since 2009 . As a result, equity investors are flying to quality. As recently noted by the Wall Street Journal, one of the investment strategies that has stood out for investors looking to ride out market turbulence is the purchase of dividend stocks. Funds that buy dividend paying stocks saw inflows of more than $7 billion in January

Put simply, a dividend stock is one that reliably makes distributions to shareholders. These companies are typically well-established in their industry and deliver predictable earnings. Dividend stocks could be favorable in shaky market conditions because payouts, while not guaranteed, are usually not reduced except in dire economic conditions.

Bank Stocks

In a February release, Citi economists forecasted that the Federal Reserve will raise the fed funds target rate by 50-basis points in March – the largest increase since 2000 – adding that they expect a total of 150-basis points of increases in 2022. With this backdrop in mind, many investors have been asking how to position their portfolios for these coming changes.

The primary source of income for most banks is interest – collecting payments from borrowers on loans. As such, when interest rates lift, banks will earn higher income from floating rate loans and revolving credit facilities where interest charged fluctuates based on prevailing rates.

Additionally, with banks currently flush with cash, there is little incentive for them to increase what customers earn on deposits. As income increases while payments to depositors remain the same, profit margins may expand. However, it will be important to keep a close eye on the pace at which rates rise, because if rates are too high it can decrease borrower demand for new loans, reducing interest income.

I Bonds

The consumer price index, a key measure of inflation, increased 7% in December – the highest spike since 1982. While you may feel the effects of inflation most directly as your grocery bill climbs, you might want to also consider how it will impact your investments.

One low-risk savings tool to consider is Series I Savings Bonds, or I Bonds. I Bonds can act as an inflationary hedge because the interest rate consists of both a fixed rate, and a variable semiannual inflation rate that is based on CPI-U, which resets on the first business day of May and November. The current annualized rate for these bonds is 7.12%, a yield which experts note beats out most fixed income products on the market.

An investor also bears no credit risk because I Bonds are guaranteed by the US Government. Important to consider however is that individuals may only purchase $10,000 annually through the Treasury, and cannot redeem for cash for a year.

TIPS

TIPS or Treasury inflation-protected securities are another instrument to consider for inflation protection. The principal of these securities is adjusted by changes in the CPI – when inflation rises, the principal increases and when inflation falls the principal decreases.

Interest is paid every six months and while the rate is fixed, the rate is applied to the adjusted principal so that payments are variable. TIPS are issued with maturities of 5, 10, and 30 years, and investors can hold until maturity or sell in the secondary market.

Real Assets

Real Assets derive their value from being a tangible physical good or object, versus financial assets which derive value from contractual rights and are intangible. Various types of investments could be considered real assets including Real Estate, Natural Resources such as oil, Infrastructure such as railroads, and Collectibles such as Art. In an investment portfolio, Real Assets can serve many purposes including:

• Possible diversification, as most real assets exhibit low correlation to financial assets
• Likely inflation protection from scarcity value

Fortunately, the ease with which investors can access Real Assets has improved dramatically in recent years thanks to the advent of online platforms offering representative ownership of assets. Platforms like Masterworks allow investors to acquire shares representing interest in works of blue-chip contemporary art.

This content is for informational purposes only and not intended to be investing advice.

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