Financial planning means different things to different people.
Some people love the hands-on approach to everything – they need to be in control – need to know the ins and outs of every aspect of their financial dealings.
Others want to know as little about it as possible and outsource to their accountants, family offices, CPA, or financial planner.
The old saying that “a little knowledge is dangerous” has never been so true.
The financial world is in chaos, at the moment, because of massive stimulus packages by the Fed. Coupled with counterintuitive moves in the markets, brand-new players in the form of cryptocurrencies, micro stock providers like Robin Hood, and easy access to trading software and statistics are all skewing the traditional certainties of investment.
Even famous investors like Warren Buffett are now finding it difficult to assess real “value” in the marketplace.
Bitcoin, for example, ticks none of The Sage of Omaha’s boxes. He has even gone on record saying, “Cryptocurrencies basically have no value. They don’t produce anything. You can’t do anything with it except sell it to somebody else,” in a CNBC interview in February.
Despite this, investors have watched Bitcoin soar to over $20,000 and be adopted by major financial institutions like Goldman Sachs and the National Bank of Canada.
Not everyone agrees. Bank of America will not allow Bitcoin transactions – nor will Chase or Wells Fargo.
This is why financial planning is such a conundrum. Who will “win” this contest?
Will Bitcoin become worthless – or will it fly beyond $100,000 before December 2021, as a Twitter poll recently created by a leading crypto expert, PlanB, showed? It concluded that 51% of BTC investors believe the price of the world’s most valuable crypto asset will appreciate to these levels.
What’s next, then?
Financial planning used to be so simple. Partly because there was not so much information to digest and partly because that information was relied on as genuine. It is becoming increasingly difficult to get reliable and accurate information even though we have instant access anywhere on the globe at the click of a mouse.
This phenomenon of information overload is a major reason for people shying away from financial planning. The reasoning is that planning for an event that will not materialize in 10, 20, or 30 years-time is pointless.
Along with this glut of information has come a proliferation of financial products to suit every pocket and demographic.
Although, in theory, this gives investors way more choice – it also confuses them, and this confusion leads to inaction.
We already mentioned the field of cryptocurrencies. There is no doubt that they are incredibly complicated and challenging to manage if you don’t know your way around them. Using the wrong exchange or not understanding code or a key can lead to disaster.
Fear of losing money underlines all of these considerations.
Nothing kills investment like uncertainty, and uncertainty is born of ambiguity.
This makes the role of the modern financial planner more critical than it has ever been.
A financial planner must wear many hats – they must be a good listener, they must be analytical, they must be empathetic, they must be accurate, they must be strategic, and they must be honest.
It is not enough to know a product or investment category – the planner must understand the tax implications of what they are proposing, they must have mapped out an exit strategy if the investment is not working out, and they must do all of this according to the risk profile of the client involved.
Making it all work in the new economy
Being open to new opportunities and ideas is vital in the road to investing in the latest Microsoft, Amazon, or Apple.
Very few people have time to keep up with ongoing investment strategies – which is why they farm them out to financial service providers.
Anyone who has subscribed to a financial newsletter by email will be aware that you soon become swamped with a plethora of “get in quick – before it’s too late ..” offers and ten or 15-page newsletters that you simply don’t have time to read – let alone absorb.
From an investment perspective, we see four major trends emerging:
1. The COVID 19 pandemic has pointed to huge cracks in the risks associated with globalization. Key supply chains linked to just-in-time delivery have been decimated – with lockdowns and quarantines closing whole industries down for months at a time.¡
Outsourcing production and manufacturing to a single country, such as China, has proved to be a costly lesson in risk.
This supply dependency on China will open whole new investment areas in the US, in the regions neglected by successive governments and industries.
2. Travel and transportation – and our attitudes to, and reliance on it, have changed forever.
Responsible for an estimated 10% of global GDP, aviation was responsible for labor migration, tourism, foreign education, and freight of valuable or time-sensitive goods.
We can split aviation (and shipping) into highly reliant areas on inward tourism, major travel hubs with large international service sectors, and vast countries with a high share of domestic air travel. Each of these will be impacted in different ways.
With 164 million migrant workers traveling between countries for work – mostly in cities (these being hardest-hit by the pandemic) – a reset on how whole industries source and use workers will come to the fore.
Could we see urban sprawl replacing megacities and tenement living, with all its associated problems?
3. With the advent of artificial intelligence and homeworking stepping up, the acceleration in solutions to problems that did not exist – even just a few months ago – will lead to the adoption of new systems and products designed because of the pandemic’s impact.
Automation will be an area that is ripe for innovation – especially for service robots in places like restaurants, hotels, retail, and agriculture.
4. The slowdown in transportation and energy use gave the window into what life could be like in a greener environment. Being able to see clearly across cities like Los Angeles has spurred a renewed interest in creating clean skies and healthier air for the first time in decades.
The adoption of green solutions to energy and other areas will accelerate strongly going forward. Governments are beginning to realize that their populations want this to be a large part of any policies they bring about.
All of these areas will be ones to watch – but underpinning all of this is uncertainty, risk, and the unknown.
Good governance will be essential to control foreign competition, tariffs and taxation, and other regulation and compliance areas. This is especially true of the dollar’s status on the world stage post-COVID – and its continued dominance as the world’s reserve currency. China will be snapping at its heels in the aftermath of the most momentous year of the century so far.
Precious metals remain a foundation – a bedrock – on which to build an investment portfolio. Gold, particularly, has shown resilience to significant world events across millennia.
Nobody knows where the next decades will take us – it is both exciting and frightening – investment opportunities will come and go from nowhere.
Staying on your toes and keeping your eyes wide open are your best options for now – and finding a good financial planner, of course.