Where to Start
Create your own Financial Strategy
For starters, all the research tells me this is not the end of the world or even some change into a constant decline. The great fact about cycles is that they pass through lows on their way to the next highs. We can all look forward to the next highs after the storm passes.
That we are also able to put some broad timeline on the low period (another 5-10 years) enables each of us to put that in the context of our stage in life and that of our families and friends. Child, adult, parent, grandparent. What finances in this period look like for us (late 50’s parents) is very different relative to our (late 20’s) children.
We have recently retired and are in a comfortable financial position. In 10 years, we’ll be well into consuming our retirement finances. Whereas our boys are in their early years of income earnings. In 10 years, they will be in their prime earning years with plenty of time ahead of their retirement needs. Two very different scenarios. Each of us must Be Prepared for our own scenario.
Invest in yourself: Spend a few moments to think about what stage of life you and yours will be at in 5-10 years.
What is the probable forecast for this financial storm? It is likely to be the largest financial upheaval in four generations, likely delivering a large correction in individual access to debt and its cost. Growing government spending on debt service will change policies (it already is in Canada) affecting taxation, bond values and possibly even the future ability of public pension plans to meet their commitments to us.
Along with the debt correction likely will come increased stock market volatility and increased probability of major downside corrections which could last many years. The stock market will probably see several years where value stocks generally provide greater safety and return relative to growth-oriented stocks. Opportunities beyond the stock market may see increased interest from investors who don’t want to live the daily and monthly volatility of the stock market.
Invest in yourself: Spend a few moments to think about where you stand with debt, taxes, pensions, and investments.
Financial inequality is likely to reverse direction. In Canada, with net worths being so heavily tied to home equity, this means that somehow, some way outside forces will transfer wealth from those of us that have significant home equity (us) to those that don’t (our children). Do house prices have to drop 50% or more to deliver housing affordability for all? 1 Some people are choosing to do so voluntarily (through cash gifts or cosigning mortgages) but the outside forces will still have their way – via government taxation or market forces.
Invest in yourself: Which side of this inequality discussion are you on? How are you and yours affected by a major housing price correction?
Some very sobering thoughts can come out of this thesis-making process. Still, wouldn’t you rather know than be blindsided one day when least expecting it?
Remember too, this will last a finite amount of time before the cycle passes back to better financial times. And, for the engaged investor, the bottom of the cycle will present a once in a lifetime opportunity.
Be Prepared blogs will work their way through the strategy we have implemented, what we are and are not doing, and what input we will give our children, should they ask. While each of our personal finance journeys is different, hopefully the blog will encourage ongoing investment in our financial futures.
Footnote:
1. The Loonie Hour podcast Episode 135 with guest Grant Williams