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At this point in the year, I really spend some time thinking about what the future holds for the markets and economy. Yes, of course, that is my full-time job. But for most of the year, “the future” consists of the next month or so, the next quarter at most. People need to understand what is happening now and what that means for the next couple of weeks. So, that is what I focus on most of the time. You can see that in this blog and in my monthly market and economic risk updates and videos. What commands the most attention is the now.
Thinking Through Our Assumptions
As we approach year-end, I have two things that require me to lift my gaze a bit. First, as my colleagues and I consider the next year, we put together an economic and market outlook for what we expect. This serves a couple of purposes, not least of which is for publication to let everyone else know what we are thinking—and what they should be paying attention to as well. We are working on this right now.
More importantly, however, is that preparing that outlook forces us to really think through our assumptions and their consequences. In the short term, you can see what is happening and what matters. Over a year or more, though, we don’t really know what will matter. So, we have to consider existing trends and how they will evolve. Although we often get it wrong, those projections provide a base not only for initial planning but also to evaluate the effects of unexpected challenges during the year. We can’t plan for the events of the future, because it isn’t here yet. But we can think things through and provide the basis for such a plan when the future shows up. You will see that outlook in published form toward the end of the year.
2023 and Beyond
The other major project underway is my regular talk for Commonwealth’s National Conference, when thousands of our advisors, sponsors, and, of course, the Commonwealth staff like myself get together for our annual meeting. There, I try and look beyond the next year into the next three to five years. Just as with the annual outlooks, I will get some things wrong, but the context these provide is, I hope, valuable in providing a basis for a longer-term thought process. That process is necessary, as most of our financial goals play out over a period of years or more, not weeks.
As part of that, I have been reviewing past National talks. On the whole, my track record has been pretty good. I discussed the breakdown of the global trade structure and the resumption of a divided world in 2018, which has proven pretty prescient. In 2019, I talked about how interest rates would stay low for some time; despite the recent increases, they still remain below what they would have been. In 2020, I predicted a continued rebound, for both the economy and the markets. Not too bad. But the problem is that I now have to do it again.
The challenge this time is that while I could rely on some well-established trends in past years, this year will be harder. Trends are changing. Interest rates, while still below where they would have been, are on their way up. Globalization may be ending, but what comes next? And while the pandemic stimulus gave the U.S. economy a tailwind, that stimulus is long spent. Things have changed and will keep changing, and the future is much less clear than it has been. And that, among other reasons, is why we are seeing so much volatility in the markets.
Keep Time Frames in Mind
But here, too, it is important to keep time frames in mind. Over the next three to five years, the paths and outcomes remain unclear, although I will be mapping some out at National. But, over the next decade or more, even if we don’t know how we will get there, we do know where we will end up—in a better place.
As always, that is the real takeaway from any of these exercises. Short-term results are uncertain. There are always risks, and sometimes those risks happen. Longer term, though, the economy continues to grow and there are always opportunities. Longer term, by investing in the growth of the U.S. population and economy, I believe you can reach your financial goals, despite those short-term risks. Longer term, things will be fine. In the end, the message remains to keep calm and carry on, and that doesn’t change.
But how we get from here to there does matter, and having some idea of the path ahead can make both keeping calm and carrying on easier. So, that is what I am working on.
