By Brandon T. Guttery, Sponsored Content
The last year and a half have been volatile, tumultuous and everything in between. A global pandemic erupted, which spurred a record setting recession & subsequent recovery to unfold, and now has led to our economy delving into uncharted waters like never before.
The importance of a financial plan cannot be understated during times such as these. As noted from the Bureau of Labor & Statistics, business inflation has reached its highest level in 50 years, consumer inflation has reached its highest point in the last 40 years, and personal income in terms of real dollar purchasing power continues to decline. We are furthermore witnessing one of the most visceral supply chain disruptions in economic history – if there was ever a time for a passive, hands-off approach to financial planning or portfolio management, this is certainly not it.
While the development of a financial roadmap will not negate these concerns, it can help by addressing the question of “What happens if?” What happens if I want to retire early? What if my retirement income is not as durable as I had thought because of rising inflation? What if Congress passes legislation that turns my estate plan on its ear & forces it to be rewritten entirely? Having a plan in hand will bring with it greater clarity about what developments the future could hold, as well as what our response to such developments would be.
Think of the economy as a spider’s web – each strand is connected to the next, and if you were to pluck one section of the web, that would send reverberations to other strands across the rest of the web. Many of these strands, and the subsequent connections they have, are not among the first thoughts that people have about the economy. So, let’s take a minute and focus on the strand of inflation, and its subsequent connection to a commodity we use every day, oil.
Inflation is the phenomenon where, as goods become increasingly scarce as the money supply expands, prices rise as a result. An excellent example of inflation in practice is demonstrated with oil & its significant rise in price over the last 18 months. According to the St. Louis branch of the Federal Reserve, the national average price of gasoline was $1.78 per gallon in May of 2020. As of the end of November of 2021, that price was hovering around $3.40 per gallon, which equates to a 91% increase during that time frame. Supply and demand were two driving factors behind that increase and was exacerbated by the expansion of our money supply as the FED continued printing money to support congressional spending initiatives.
Given oil’s denomination in dollars, our money supply expansion has now translated directly into higher costs that we as consumers incur in everyday life. As I referenced a minute ago, we see this trend unfold in practice at the gas pump every day, which then becomes a consideration to reflect when constructing a client’s financial plan.
Details like this are, among others, examples of those captured in a financial plan output, which helps us to illustrate to clients how developments domestically or internationally could impact their ability to accomplish their financial goals. Having a roadmap for your financial future that brings together factors like what I’ve just discussed can be of critical importance in preparing for the future. Just as you identify gas stations, hotels and restaurants on a map when taking a long drive, it is equally important to identify what could impact your financial future and influence when you arrive at your desired destination.
Ultimately, each plan is tailored to the specific client with whom we engage – for example, a focus of ours for our high-net-worth clients is the potential for a tax code overhaul coming out of Congress. For instance, leveraging assets such as life insurance or qualified investment accounts are an excellent means of mitigating the impact of income taxation. To the degree that you are able, maximizing IRA and 401k contributions would be beneficial as well to capitalize on the preferential tax treatment of those accounts, while taking into consideration any phase out schedule that may be present on the accounts.
The point, simply, is this: there many variables that could impact your financial future. With the economic landscape unfolding as it has, this is no time for an auto pilot approach to financial planning or portfolio management. Undertaking an active, planning driven approach that considers each strand of the economy and their subsequent connections will likely prove to be greatly beneficial in the years to come.
Brandon Guttery is a financial advisor with Keystone Financial Group in Trussville. Brandon offers products and services using the following business names: Keystone Financial Group – insurance and financial services | Ameritas Investment Company, LLC (AIC), Member FINRA / SIPC – securities and investments | Ameritas Advisory Services – investment advisory services. AIC and AAS are not affiliated with Keystone Financial Group. Information provided is gathered from sources believed to be reliable; however, we cannot guarantee their accuracy. This information should not be interpreted as a recommendation to buy or sell any security. Past performance is not an indicator of future results.