A Winning Bet for 2023
As a new year dawns, we are greeted in the press with “hits and misses” involving last year’s forecasts, along with perspectives for the year ahead. What the gurus largely missed in 2022 included nettlesome inflation that was not “transitory,” expanding war in
Bet on yourself. What you resolve to do regarding personal growth along with common sense policies and basic principles of financial prudence will have far more impact on your well-grounded, purposeful, fulfilling, and “peace of mind” future than what happens in the
Consider personal investments in education and skill development, and physical, mental, and spiritual fitness. Self-improvement is far more important than deciding which stock, ETF, or mutual fund to buy. Career advancement with an employer, or building your own business, is the financial engine that largely enables you to fund family obligations, lifestyle upgrades, and a growing net worth. Professional athletes have coaches. The right mentors and coaches can be of tremendous help in career and financial success.
Build sufficient safe and stable liquidity so you can live for some time, say, a year, with no income. That’s peace of mind that allows you to focus on your long run future, as well as providing flexibility when the unexpected strikes so you can avoid running up debt. Be sure to carry adequate insurance, including life, health, disability, and liability coverage. Include “excess umbrella excess liability insurance” relative to your net worth and earning power in order to guard against unexpected calamities and aggressive lawsuits. Use debt wisely. Usurious credit card interest rates and other expensive debt are major potholes on the road to financial self-sufficiency.
Be aware of time frames and how quickly your future arrives. How many years do you have to build real wealth before major obligations loom? Buying a home, starting a business, educating children, taking care of aging parents or other loved ones, dealing with a special needs child, funding your vision of whatever retirement or financial independence looks like? In the current political and economic environment inflation is a bigger factor in your planning than it was a year ago. Cheap money and low interest rates are unlikely to return any time soon unless there’s a total global collapse. The “Goldilocks era on Wall Street” is over.
Know this. Every problem currently at hand suggests a money-making opportunity for someone or some enterprise. Betting on America to grow over time, and the stock market along with it, is a safe wager, although we can speculate about how much and how fast they will do so in the short run. Ignore the gloom and doom alarmists and their prognostications about the world ending as we know it. They have always been out there and are perpetually wrong.
Some current stock trends are worth considering. Value stocks have held up far better than growth stocks. The Dow Jones Industrial Average, which is dominated by dividend-paying value-oriented stocks, was off by 8.8% for the past year. The more growth-oriented S&P 500 Index gave up 19.4%. The tech-heavy Nasdaq Composite Index dropped into significant bear market territory, down 33.1%. Speculative bubbles in faddish pursuits such as crypto, non-fungible tokens (NFTs), and Special Purpose Acquisition Companies (SPACs), have burst. While the outlook remains uncertain, and the future will always be uncertain, opportunistic money managers are finding promising long-term plays.
The foundation for long-term wealth building is ownership. You want ownership interests in real estate in the path of growth or tangible assets in emerging sectors and other alternative plays. You want to own interests in growing companies, perhaps your own company if you have entrepreneurial strengths and talents. If you work for yourself in a growing enterprise, you may be working for the toughest boss ever!
Prepare for continued higher rates of inflation compared to the last twenty years, even if the current rate of All Items inflation of 6.45% drops somewhat. If you target financial independence (a better word than “retirement”) in twenty years, at an average rate of 4% annual inflation it will take $2.20 to equal the buying power of today’s dollar...or $2,200,000 to equal a $1,000,000 nest egg today. From 2002 to 2022, inflation averaged 2.46% per year, close to the Federal Reserve Bank’s target of 2% per year. Even at that so-called “low rate of inflation,” it takes $158 dollars today to equal the purchasing power of $1oo twenty years ago.
With federal debt levels at historic highs and demands for government spending growing, do you think inflation will drop back to 2% or so per year? Do you think taxes on wealth and wealth accumulators are likely to decrease? Inflation considerations and tax planning must be a major factor in your financial life planning strategies going forward. Bet on yourself indeed. The political and financial world is fraught with uncertainty and pitfalls. Staying informed and well-guarded will pay off in time. Happy new year!