Year in Review
"Never give up on a dream just because of the time it will take to accomplish it. The time will pass anyway."
- Earl Nightingale.
Planning for 2022
As we head into 2022 and make plans for the future, it is important to find time to reflect back on the past 12 months. A lot has happened. Last year, as it pertains to financial planning opportunities and challenges, has reinforced and remind us of the perpetual state of change. How much we can and cannot influence change. How much we must be flexible and humble to that beyond our control.
What have you learned this year?
How has 2021 informed you about what you want to plan for in 2022?
Observations from 2021
We entered the second year of a global pandemic with the rapid deployment of not one, but three vaccines. Last summer we saw the reopening of international borders, a reduction in pandemic restrictions, and a sharp increase in business activity and travel over the year prior. Consumer spending increased sharply and challenges to the international supply chain and labor shortages have contributed to annual inflation running over 5% for the first time in over 30 years.
Reviewing economic numbers and minutes from the most recent federal reserve meeting highlights several challenges for consumers to be aware of as they start to plan for the new year.(1)
Inflation is much higher than consumers have experienced the last 30 years and does not appear to be moving lower to start 2022.
Quantitative Easing - The federal reserve has signaled they will slow down and stop bonds purchases. This could have an impact on interest rates and interest rate related products. Resulting in high lending costs. (mortgages, business loans, corporate bond rates etc.)
Market Perception - The banking sector believes we will see at least two interest rate hikes from the Federal Reserve in 2022 if not, three hikes. Many banking institutions believe the Federal Reserve will have to pay attention to inflation in 2022 and take action to reduce inflation.
Labor shortage and dislocated labor - several segments of the economy are struggling to attract or find workers to fill jobs. We haven't seen this many job openings and this many people looking for a job ever.(2)
High International Tensions - Chinese and Russian military activity has been very high this year. Raising the potential of a military conflict or cyber conflict to levels not seen since the 1980s. (3)
What can we do to better prepare for 2022?
Mindset - Get mentally prepared for higher consumer prices, and do not be surprised if inflation is higher than experienced in the past 10 years.
Review and update your cash strategy - Schedule time to update your cash strategy in Q1 of 2022. We have strategies to help your excess cash keep up with inflation.
Review and update your investment strategy - If you missed your investment review in the fall of 2021, it is important we review our allocation for 2022.
Lower market returns - We see several segments of the market trading at valuations that are simply unsustainable or otherwise unlikely to repeat rapid upward movement.
Reset Market Expectations - With a rapid rally in equity prices the past 18 months, our brains can fall victim to recency bias. We start to assume what happened recently will just continue to happen. A pattern will continue to repeat itself. This mental exercise has helped us evolve as humans. However the same mindset in finance is illogical and can trick us into justifying and doubling down on bad decisions or strategies with a low probability of success.
Find our Blind Spots - One of our primary responsibilities is to provide you with current and ongoing prospective to help you make more informed financial decisions. We want to help you become more aware of your blind spots. Heading into 2022 we will be providing behavioral finance assessments and meeting time to discuss and review your investment biases and blind spots. (Financial Virtues)
We appreciate the opportunity to be your strategic partner, supporting and executing your financial plan. Heading into 2022 we look forward to enhancing our financial planning process, deliverable advice, wealth management strategies, online experience and mobile access.