Originally published on June 21, 2019
This may surprise you, but a lot of clients have similar concerns when it comes to investing in markets. Here’s a few that come up every now and then:
-What if the Fed raises/cuts interest rates?
-What if we go to war in the middle east again?
-What if (insert name here) wins the 2020 election?
-What if the market is in a bubble?
All of these are valid questions, and they could impact your financial plan. A few of my retired clients have remarked before that I don’t need to worry about risks since I have a long time horizon to ride it out, but there are definitely some other potential risks that everyone should be aware of. They just may not directly impact our portfolios immediately.
I’m optimistic about the future. I truly believe America’s best days are ahead, but we won’t get there without some very tough times.
While I do think that many Americans will persevere through headwinds they embrace, here are some future risks I think we all need to be aware of:
If you are planning to be a career long resident of Illinois like myself, you should be concerned. There is no way to put a positive spin on the state and local municipalities financial situation. Many pension funds throughout the state are drastically underfunded, and unlike the federal government, the state cannot create money. Taxes will continue to go up, services will likely be cut, population will shrink, and our property values could decline. Is there a way for them to dig out of this hole? It’s hard to see how that would be possible.
What if driverless trucks actually happen? Over 8 million people currently work in the trucking industry, and I’d suspect very few of them are trained to be computer programmers. Does anyone think that 8 million people are going to see their jobs disappear peacefully? Massive unemployment can lead to violence. What happens to communities like Troy, Illinois if trucks no longer stop there?
It’s not only the trucking industry, any job that requires repetitive tasks could likely be automated. Over 3 million people work in call centers throughout America, and artificial intelligence is being created to replace those jobs as well. Fast food workers are already being disrupted by automation, but it’s estimated that nearly 4 million people still work in fast food.
We don’t know what jobs will be created in the future, and I am certain there will be plenty of new jobs that are unimaginable at the moment. The question is, will there be enough skilled people to perform them? And what are the consequences if a hefty percentage of the population cannot perform any work?
Cost of Living
The inflation numbers would show that the cost of living isn’t increasing much year to year. But, young families are burdened by the cost of student loan debt, childcare expenses, healthcare costs, and if they own a home they are likely paying a good chunk in a mortgage and real estate taxes. I believe in personal responsibility, so it does annoy me a bit when someone struggling with monthly cash flow decides to buy a $50,000 SUV and take on a $900 monthly payment.
You know what is often kicked to the curb for these young families? Saving for retirement, which is a BIG mistake. Compounding interest only works over time, the more time the better of course. Imagine a snowball growing as it rolls down a mountain, the bigger the mountain the bigger the snowball.
What if my generation doesn’t save enough for retirement?
Food and Health
The statistics are not good. We Americans are not a healthy group of people. Even back in 2005 the NY Times was writing that the current crop of children at that time would be the first in nearly two centuries to have shorter life expectancy than their parents.
This may sound crazy, but I am somewhat optimistic that this will be changing. People seem to be much more aware now than ever before about what type of foods they are putting in their bodies, but the question is will they have sustained self control to improve their long-term well being? That’s the hard part. Many people know how to be healthy, but they still don’t do it. Many investors know you aren’t supposed to sell just because the market drops, but that doesn’t make it easy.
About 25% of the federal budget goes to 4 health insurance programs, what will happen to that number if we don’t change course?
This picture is hanging in my office. All of the risks I listed matter, but we cannot control them all. We should only focus on what matters and what we have control over.
Can you control your health? To an extent, but sometimes even healthy people are faced with unforeseen issues.
Can millennials avoid buying $50,000 SUVS and buying homes outside of their budget? Yes.
Can we control losing jobs to automation? No, but we can attempt to pivot and learn new skills and hope to educate our children properly for jobs that don’t even exist yet.
Can we control what happens in Illinois? HAHA!
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