Does anybody really know where the economy is headed?
For the most part, long-term investors have fared fairly well if they didn’t bail on their investments during the initial days of the pandemic. Even as we begin to move toward normalcy, investments have generally continued to perform reasonably well.
However, many anticipate the investment world will come crashing down. Keep in mind, there’s a significant difference between a correction and a collapse. But for a variety of reasons, many are bracing themselves for a severe financial storm that would adversely impact many nest eggs.
Why do so many anticipate doom and gloom? I think there are a variety of reasons, the most obvious being our toxic political environment. Without a doubt, our nation is politically divided. It appears there are two totally different visions of what the future of our nation should look like.
Another key reason for the negative outlook is our huge national debt, which continues to grow at an alarming rate. Everybody wants to spend, with little concern about how to pay for all of the new proposals. I also believe another reason for pessimism is that there’s too much information out there. Who can understand it all?
For example, how many people really comprehend Crypto currencies? Will Crypto have an impact on our financial future? Quite possibly. But nobody is really certain to what extent.
To put it bluntly, there are a number of issues and concerns that are difficult to grasp. So it’s easy to be fearful and fall into a doom and gloom state of mind. I do have some concerns. But overall, I’m leaning toward the optimistic side.
That doesn’t mean I believe investments will continue to appreciate without a downturn. I have repeatedly observed that the investment world periodically exhales and inhales without warning. Grinding through the downturns is simply a part of being an investor. And for most, the best course of action is to ignore the day-to-day chatter and stick to your financial plan.
There will always be turbulence and fluctuations in the markets. Remember, a downturn may be difficult to stomach, but there’s a significant difference between a downward slope and a total collapse.
I believe several factors must be considered. In fact, in the short term there are four key concerns I feel will determine the ultimate direction of our economy.
The first is oil prices. Will the cost to fill your tank skyrocket? The more we depend on external energy sources, the more likely it will. Housing is the second item we need to watch. Without question, the price of building is through the roof.
But what happens when all of the government imposed rent freezes come to an end? I suspect many landlords will immediately raise rents on their tenants in an attempt to recoup losses. Will renters be able to handle these increases?
Then there are food prices. Are increases temporary or here to stay? And finally, there’s the cost of labor. Employers are desperately seeking workers. Will the demand for qualified employees make all the talk about minimum wage irrelevant?
Summing up, I believe inflation is a legitimate concern in the short term. But long term, I continue to remain optimistic. There may be issues, but I don’t foresee an extreme doom and gloom scenario for our economy.
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Ken Morris 248.952.1744
E-mail your questions to kenmorris@lifetimeplanning.com
Ken is a registered representative of LPL Financial. Securities and financial planning offered through LPL, a Registered Investment Advisor, member FINRA/SIPC. Ken is Vice-President of the Society for Lifetime Planning in Troy. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.
