Current caution flags, and ideas on improving your financial situation.
It's a good time to get thrifty again. Think 2, 3, 5x before spending conspicuously. Put some money back. If you want ideas for cash, go listen to our recent cash podcast under "The Daily Mission" (avail on Spotify, Apple, Amazon, Anchor).
It's time to communicate clearly with your spouse/partner (if you're in a marriage or relationship). Get on the same page. Create shared vision. We have tips and tools for better financial communication through dialogical process. That topic will drop soon on audio. In the meantime, reach out w/questions.
If you are taking risks, bets, wild swings on high-beta (aka high-risk), low/no profit, low/no-cash-flow (and includes meme stock) companies (aka sh*tco's), you have to understand the needed conditions for these investments continue to grow, long-term. The floor is gone, and the helium tank is empty. The conditions have changed. The probability of you getting rug-pulled again is increasing.
Don't toss your pearls to swine. Turn off the noise of the charlatans.
You’re going to have to fade this hyper short-term, myopic focus. People are missing the structural, geopolitical, manufacturing, supply-chain related issues. Not to mention the issue of less liquidity, or the reduction of large sums of money sloshing around out there. And the cost of capital going up. Meaning the cost of borrowing. Or, easy leverage.
From what the math looks like, I don't see how we move forward without either sustained higher inflation or a sustained deep recession situation. The Fed has made it clear that their top objective right now is bringing inflation down, and that means higher rates. Either way, we have further impacts on the economy and markets to come.
The forces of long-term deflation (as we in the US exported inflation) were present because of globalization, arguably a sort of "hyper globalization". That dynamic has been completely disrupted, and we're in a time of transition to a new system. You don't just "bring back" the conditions that existed for the last 2+ decades.
The Fed is not pivoting. Meaning they are not slowing down or back down. They intend to raise rates, and keep raising rates. Do not be surprised if we have sustained inflation and end up with a 4% Fed Funds Rate by the end of the year.
We are also experiencing wage inflation, which will add to inflationary pressures. And no one actually knows the outcome here. Do not bank on a quick drop in inflation. Do not bank on markets hitting a bottom and running right back into a secular (sustained, long-term) bull market. You are risking too much, given the set of probabilities we face.
What's happening is that the average person's purchasing power of is decreasing. People care about the affordability of items needed to have even a median standard of living.
So, it’s time to get efficient.
There are multiple actions you can take:
1. You can seek to save more (many ways to do this)
2. You can seek to earn more (several ways to do this)
3. You can seek more tax efficiency (more ways to do this than you might realize)
4. You can seek better risk management of your assets (several ways to do this)
5. You can diversify holdings. Diversification does not mean different stocks. We're talking about correlation. How one asset class works versus another. Things that don't move in tandem up or down.
You can do all of these things, take all of these actions at the same time.
And this creates wider margins for your household.
When we manage money, we're think in "basis points". That's 1/100th. Think of it like a penny. You have 100 pennies in 1 dollar. If you make 25 pennies or lose 25 pennies, that's 1/4. We call that 25 basis points, or 0.25%. Whether it's 5 basis points or 10 or 25 or 50 basis points here or there, it adds up over time.
Strive to make more while working to lose less. That's the game. Same with your household expenses, earnings, savings, investments, and taxes.
The key message here is this.
There are things that you can take action on. And these actions incrementally add up. Don’t discount the difference that a little here and a little there can make.
And don't wait. Take action now. Start thinking like a risk-manager, a planner, a CFO.
The old saying by Ben Franklin: “An ounce of prevention is worth a pound of cure” would be useful right now.
#financialplanning #lifeplanning #investments #portfoliomanagement#riskmanagement #saving #markets #inflation #money
Disclosure: This is not financial advice. We don’t know your individual or organizational situation. Consult a professional if you are looking for guidance.