Good and Bad are tricky words but can make a good title. More accurately, however, we should probably say Growth: When It Works and When It Doesn’t.
In general, growth is viewed as a good thing. It means ‘more of something,’ not necessarily better and not necessarily more of the right thing. We’re seeing growth in some markets, but we’re also starting to wonder about some growth that could be cause for concern; namely, Inflation.
There are a few perspectives to this. One perspective is that when the Federal Reserve prints currency in large volumes, inflation will begin to creep up as the value of those dollars decreases on a per unit basis.
From 2008 to 2014 the Federal Reserve printed $3.9 trillion in response to the economic tumble that had occurred in 2008*. $3.9 trillion is a massive number, and 6 years is a relatively short period of time. The expectation of inflation was reasonable, but ultimately, un-experienced. The crisis behaved more as a deflationary event and offset a certain portion of the inflation** and there were other factors that also prevented meaningful inflation jumps.
The question now, however, should focus on the potential for inflation based on recent Federal Reserve printing. The Fed projects that it will have printed over $3.5 trillion in currency in just a few months (not six years) to respond to pandemic stimulus. Will there be inflation as a result of this unprecedented spending? Perhaps. But there’s probably an even better question to be asking.
Where should we look for inflation?
Market forces come from every direction. Inflation, performance announcements, receiverships, acquisitions, divestitures, tweets, the media, rumors, and shifting market opinions are just a few things that can influence the market. There are so many market pressures that it’s difficult for any one person to understand what will ultimately affect a result. That’s why advisors, portfolio managers, sophisticated algorithms, charts, graphs, trends and investment philosophies exist – to try to make sense of it and make solid decisions.
But where should you look for inflation? You should look for inflation in the confidence of your plan. You should look for inflation in the clarity of your vision for the future. You should look for inflation in the depth of conversation and discovery with your advisor.
Here are three things you should be doing right now:
- If you have a financial plan in place, you should be reviewing it so that you confirm or inflate your own clarity on what you are pursuing and why that’s important to you. If you don’t have a plan, reach out to us directly. We’d like to help you with that.
- Review your plan with your advisor. If that’s us, we already have you on a review program but if you’d like to take some time to do a refresh of things based on all that’s been happening, now would be a good time.
- Behave according to your plan. The purpose of a plan is to act on it, not to have it on a shelf somewhere. Make sure you’re working the plan, not trying to work the markets.
Inflation works for you when you direct it to the things that matter to you most.
*$9 trillion and counting: How central banks are still flooding the world with money. CNN Business
**Why Didn’t Quantitative Easing Lead to Hyperinflation? Investopedia