Higher inflation also will be with us for a while, despite the Fed’s assurances that it is transitory, suggests Bob Carlson, a specialist in retirement investing and editor of the aptly-named, Retirement Watch.

Demand outstrips supply in almost every sector of the economy. In most sectors, these are multi-year imbalances. Businesses also face higher costs associated with climate change policies, as well as cybersecurity.

There are aging work forces in most developed nations, and an older work force usually leads to higher inflation because of lower productivity.

Interest rates are more likely to rise than to fall. Declining interest rates were a major factor pushing stock valuations higher because investors determine today’s stock prices by using interest rates to discount future profits and cash flows.

Investors have been discounting extremely high earnings growth and low interest rates. If interest rates rise, investors will give stocks lower valuations. Also, if the growth rates of profit margins and cash flow decline, investors will give stocks lower valuations.

The Fed has provided a lot of support for growth stocks since 2009. It is ready to reduce that support. Even if it doesn’t, recent indications are that monetary stimulus has pushed growth stock prices about as high as it can. Investors are shifting away from the last decade’s big winners to investments with bigger margins of safety.

The markets are changing, and that’s a good time to make some shifts in our portfolios. With growth stocks priced richly we are recommending a new investment in Main Street Capital (MAIN).

This is a business development company (BDC) based in Houston, Texas. It trades on the New York Stock Exchange and is purchased and sold the same as most publicly traded company stocks.

A BDC generally makes loans to privately held businesses but also can buy stock from the companies. MAIN both makes loans to — and buys stock from — companies that have annual revenues of $10 million to $150 million, defined as the lower middle market. The BDC also makes loans to larger middle market companies. Its staff thoroughly evaluates a business before MAIN invests.

MAIN seeks to establish long-term relationships with the leaders of the companies it backs. Plus, MAIN and its predecessors have been investing in private companies since the mid-1990s.

After recovering from the pandemic recession, MAIN’s share price has been fairly stable and the BDC generates a yield of more than 6%. The stock is up 4.03% over three months, 35.69% for the year to date and 44.16% over 12 months.

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