The post-pandemic economy and consumer spending are robust. But surging inflation…global supply shortages…stocks near record highs…and bond yields near record lows are creating plenty of angst for savers, investors and consumers. ­Bottom Line Personal asked six of our top experts for the best financial moves to make in 2022 to take advantage of—or defend against—these developments…

To Boost Yields

Interest rates will remain low for most of 2022, with yields on deposit accounts and high-quality bonds near zero. Banks are already so flush with cash that even if inflation persists and the Federal Reserve starts raising short-term interest rates next year, yields on CDs and savings and money-market accounts will barely budge. Strategies…

 Take advantage of higher inflation with Series I savings bonds. Back in September 1, 2021, Bottom Line ­Personal urged readers to protect the purchasing power of their cash with these US government savings bonds—their yields adjust every six months depending on inflation rates. The new I-bond yield, available from November 1, 2021 through April 30, 2022, is a remarkable 7.12%, the highest since the program began 23 years ago. Go to Treasury Direct.gov to create an online account and buy I-bonds commission-free.

Caveats: I-bonds cannot be redeemed for at least 12 months—that adds some risk since the yield for the next six-month period, starting in May 2022, has not yet been determined. But inflation is likely to still be high then, meaning that I-bonds will offer a far more attractive yield than locking up your money in a one-year CD (recent average yield: 0.32%). Also: There are annual purchase limits—a maximum of $10,000 per person in electronic I-bonds—as well as a maximum of $5,000 in paper I-bonds purchased using your federal income tax refund. There’s an early-withdrawal penalty if you cash out any or all of your I-bonds within the first five years after purchase, but it’s only three months’ worth of interest.

Ken Tumin is founder of Deposit
Accounts.com, which monitors interest rates at more than 6,300 institutions. He is based in Longwood, Florida.

Add some Dividend Kings. There are just 32 companies that have paid increasing dividends every year for the past half-century—through wars, recessions, hyperinflation and the pandemic. Blue-chip stocks such as these, which pay ultra-reliable income, are a better choice in the coming year than low-yielding corporate and high-yield bonds, whose values suffer when inflation and interest rates rise. Dividend Kings have historically proven their ability to continue increasing dividends through recessions. With a likelihood of dividend growth even through difficult times, the income from Dividend Kings can make the price volatility of a recession easier to stomach. Attractive Dividend Kings with yields of 3% or higher now…

Northwest Natural Holding Co. (NWN), a natural-gas service supplier in the Pacific Northwest that has raised its dividends for 65 years in a row. Recent yield: 4.2%.

Coca-Cola (KO). The carbonated-soda leader has raised its dividend 59 years in a row and is expanding its customer base with brands such as AHA flavored seltzer and Gold Peak tea. Recent yield: 3%. 

To see the full list of Dividend Kings, go to SureDividend.com/dividend-kings.

To Improve Stock Returns

Stock valuations are stretched, and that could lead to increased volatility in markets next year. Still, that’s no reason to abandon stocks while interest rates are relatively low and the chances of a recession are remote. Instead, investors should consider trimming their high-flyers and reallocating money to undervalued sectors with strong prospects. Strategies…

Look for stocks temporarily hurt by supply-chain disruptions. Pandemic-related slowdowns in factories overseas, rising commodity costs and a microchip shortage are choking the supply of many industries, including automobile manufacturing, even though demand is booming. While that should hurt carmakers’ revenues in the next few quarters, it also creates opportunities for long-term investors since shortages could start to dissipate later in 2022. Attractively priced auto stocks: Ford Motor Co. (F), recent share price:
$19.86…General Motors (GM),
$62.97.

David Whiston, CFA, CPA, is an automotive stock analyst for Morningstar Inc., Chicago, which tracks more than 621,000 investment offerings. Morningstar.com

Invest in the defense sector. Companies that produce aircraft carriers, submarines, planes and military equipment were hit hard during the pandemic and have been slow to recover. But China’s increased military aggressiveness and the rapid shift of power in Afghanistan have geopolitical consequences that will spark significant business for defense stocks, not just from the US but also Western Europe, Australia, Japan and Taiwan. If tensions escalate, defense stocks will skyrocket. If relations normalize, the stocks are so cheap that you’ll still make money. Defense stocks worth considering now: Huntington Ingalls Industries (HII), recent share price: $190.41 …Lockheed Martin (LMT), recent share price: $340.92.

Vitaliy Katsenelson, CFA, is CEO and CIO of Investment Management Associates, Greenwood ­Village, Colorado, and author of Active Value Investing and The Little Book of Sideways Markets. IMAUSA.com

For Better Consumer Deals

Prices for many goods, from automobiles to houses, are soaring because consumers are flush with cash and demand is high…but COVID-related slowdowns and labor shortages have pressured available supplies. Strategies…

Housing…

If you are a home buyer:  Expect the average interest rate on 30-year fixed-rate mortgages to rise modestly to 3.5% in 2022 (versus 3.14% in mid-November). Bigger challenge: The low supply of homes ensures that many home buyers face strong competition for even moderately desirable properties. It will be easy to lose out on a home if another bidder can close on the deal more quickly than you. Get preapproval—not just prequalification—for a mortgage before you go shopping. And be prepared to pivot to other properties if you are outbid. 

If you are refinancing: Do it right away. There’s very little chance of refinancing rates dropping from current levels, and they should drift upward throughout 2022.  

If you are a home seller: You’re in a strong position. Make sure your new living situation is squared away, otherwise you could find yourself scrambling. 

Keith Gumbinger is vice president at HSH Associates, which publishes mortgage and consumer loan information, Riverdale, New Jersey. HSH.com

Automobiles…

New-car buyers: Dealers have 80% less inventory due to global supply shortages. Prices on new cars are up 13% year-over-year (through September) and will remain high. Try to put off buying a new car for at least the first half of next year. If you must buy right away, be prepared to compromise on color and features. Another option: Consider leasing for 12 to 24 months—there will be a much better selection, and manufacturers such as Honda and Toyota are offering good lease incentives now.

Used-car buyers: Prices on used cars were 25% higher year-over-year in September, the largest increase we have ever seen. They should remain inflated through next year due to the supply crunch in new cars. The best relative deals are on three-year-old sports sedans, SUVs and trucks. Examples: Chevrolet Colorado, Dodge Charger, Lexus IS 300, Nissan Rogue Sport, Toyota Highlander.

Ivan Drury is a senior manager at the consumer automotive information site Edmunds.com, Santa Monica, California.

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