Managing This Year’s Risks
New rules for this economy are unfolding
I hope like many of you, I had a chance to catch my breath in January and reflect on the past year, then turn some attention to 2021. This may sound odd, but in the midst of thinking about 2021, I found myself remembering back to my first dinner date. Hey, as they say in meditation, “Follow your thoughts. Then come back to your breath.”
What I remembered, aside from being shy and not very self-confident, was how little I knew about any of it. What to wear, how to get to the restaurant, what to talk about at dinner. Once I looked at the menu, I wasn’t even sure if I had enough money to cover the bill and the tip. What I remember is that I was nervous and unsure. (And that I only ordered a side salad to make sure I could cover the bill!)
Maybe it was the nervous and unsure part that surfaced the memory because coming out of 2020 and into the early days of 2021, I surely felt both about the year ahead. Until I didn’t.
While we are taking the first important steps of beating the pandemic with vaccines being distributed globally, we are also dealing with new rules regarding the economy that is unfolding in front of us. The reality we face today is one of great divides. The chasm between the haves and have-nots continues to widen. The pandemic-caused recession has created more unemployment than in 2008. Small businesses in our communities continue to close. Meanwhile, the stock market continues to break new records while revenue and profits for large companies accelerate.
There are not so subtle shifts to watch and consider. Technology, for instance, already played a large role in our lives, but it made an exponential jump during the last year as we changed the way we work and live. Meanwhile, the jobs market continues to struggle to meet the rapidly changing labor demand.
The widening divide also impacted how we look at investments. It was until very recently commonplace to hold broad real estate funds as a way to provide diversification to our portfolios. Now, we must dissect every investment as we consider a new mix between commercial and residential income property and warehouses because we expect very different outcomes for these investments moving forward.
Meanwhile, the government has been printing money in the form of stimulus to provide a bridge through the recession, propping up the economy and eventually allowing us to recover more quickly. However, the federal debt and M2 money supply have both grown to levels never experienced in history. As we heal economically, the M2 money could provide us with a very strong economic expansion for years to come. It is also possible that we’ll see rising interest rates, inflation and possible economic stagnation.
Many of us doubt that will happen with the steady hand of Jerome Powell at the Federal Reserve and now Janet Yellen helming the Treasury. Still, we are in unchartered waters and for that reason I am suggesting that we connect more often to examine the moment and manage portfolios. It will be the best way to manage this year’s risks and find the opportunities to take advantage of, too.
Kevin C. Swanson
This blog is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.