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Retirement Planning and Current Economic Conditions

Retirement Planning and Current Economic Conditions Fitzwilliams Financial

The economic state we are in right now is intricate and, in some ways, has never been experienced before. The coronavirus has caused massive alterations in how the market functions, and we need to change our approach to retirement planning.

Inflation

Government payouts were a prominent feature of the pandemic. However, the danger is that these payouts might cause inflation to soar, and when compounded with regular inflation, the consequences could be quite severe.[1] You have probably noticed that the cost of everyday things, such as food and fuel, has gone up significantly.

Shifts in the world economy

Throughout the years, the world economy saw an increase in development. With more sophisticated means of traveling and transporting goods, businesses started to venture into other countries, causing an increase in industry worldwide. This led to a period of rapid economic growth.[2] However, this trend is now decreasing as nations are becoming more protective of their industries and are no longer implementing an open-door policy. This is a matter of concern, as China is a major exporter of goods, and if they stop trading with other countries, it could have a disastrous effect on the world economy and our own.[3]

Shifts in the workforce

The effects of the pandemic have caused a reduction in the country’s labor force. Current salary increases are not able to keep up with inflation. This means that even if a person is getting a yearly raise, it’s likely that it is not actually creating more spending money for them. This is a substantial issue because if employees don’t believe they are earning enough, they probably won’t be spending money on consumer goods, which is vital for keeping the economy afloat.[4]

What this means for you

With the current economic situation being uncertain, retirees and pre-retirees should be aware of the impact inflation has on their savings. Due to the instability of the market, investments must be made with caution, taking all related factors into account. If you are in need of financial advice during this period of uncertainty, feel free to contact us for a free assessment of your finances.

When consumer confidence hits a multi-decade low, it is completely natural for you to feel a sense of hesitation about your hard-earned savings. If you are approaching retirement, seeing prices rise while trying to figure out the right time to adjust your portfolio can feel incredibly stressful. However, this low confidence might actually be introducing a healthy dose of critical thinking into the market right now. Instead of rushing into investments out of a fear of missing out, I am seeing people take their time to analyze their moves before they act.

This deliberate pace could be a vital asset as we prepare for what might be a historic three trillion dollar wave of tech IPOs. The names hitting the market are incredibly popular, and the media hype may make you feel like you need to change your entire strategy to get a piece of the action. But we must look closely at the underlying reality: many of these massive firms are not yet profitable. The typical corporate fundamentals simply are not there yet.

Because of this, I believe you should treat these speculative assets with extreme caution, much like money you would take to Vegas. If you want to participate, you might consider limiting that exposure to no more than five percent of a well-diversified portfolio. You should never dismantle a carefully crafted, long-term retirement plan just to follow a market trend. Furthermore, you must realize that extreme trading volumes during these public launches could cause your orders to execute at vastly different prices than you originally intended. It pays to be patient and let the dust settle.

If you have questions about how these shifting market dynamics might apply to your personal retirement plan, our team is always here to help.

Key Takeaways

  • A drop in consumer confidence may encourage a healthier investment environment by forcing individuals to rely on critical thinking instead of emotion.
  • An upcoming wave of massive technology IPOs might generate significant media hype, but these companies may lack current profitability and traditional business fundamentals.
  • Investors should avoid allocating more than five percent of a diversified portfolio to highly speculative, unproven market assets.
  • Heavy trading volume during a major public offering could cause investment orders to execute differently than an investor expects.

Fitzwilliams Wealth Management, Inc. is an SEC registered investment adviser. FWM and Fitzwilliams Financial are affiliated companies. This content is for informational purposes only and should not be construed as personalized investment advice. We do not provide tax or legal advice. Investing involves risk. Media appearances are for informational purposes only and do not constitute an endorsement.
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