’Tis the season for predictions about the economic forces at play in the coming year. Heading into 2022, some of the burning questions include how long the pandemic will linger, and what effect federal taxing and spending policies will have on investors’ bottom lines. There’s worry if inflation is here to stay. And here’s the big one: Will there be a market correction after more than a decade of unprecedented growth?
South Jersey financial advisors are monitoring these situations and lots more for their clients. Al Fox of Fox Penberthy & Dehn at Morgan Stanley knows his honest assessment will likely disappoint anybody looking for quick, hot tips.
“Everything can be answered by ‘We don’t know what we don’t know,’” says Fox, a founding partner of the Mt. Laurel-based group.
Take the rising prices of consumer goods like milk and eggs – obvious to anyone who has shopped for groceries lately – to car sales and the cost of lumber, he says. It’s a hot cable news topic as pundits give their take on whether high prices are here to stay, he says, and how that affects people’s everyday lives as well as their portfolios.
“There are definitely some goods in the marketplace that cost more today than they did a year ago, or even 3 months ago,” Fox says. “Some of that price hike is related to supply chain issues, some is materials-related and some manufacturing-related. Higher prices for some items are probably going to stick around, but the truth is that nobody really knows the long-term effects of any of these issues.”
Certified Financial Planner Anthony Massaro, of M Financial Planning Services, notes that the many economic forces projected to be at play in the new year could affect people differently depending on their stage in life and their financial goals.
With many of his millennial clients, questions about whether to buy or sell homes are front and center. The forecast is decidedly mixed, he says, noting that the hot market is showing signs of cooling. At the same time, the Federal Reserve is signaling the era of low interest rates may be coming to a close.
“We’re advising clients to consider holding off on home purchases at the moment unless they have an offer that totally makes sense for their situation,” Massaro says, noting the concern is that home prices are inflated and could take a dive in the coming years. “We’re encouraging them to consider how long they plan to stay in the home or if they may be moving out in 2 to 3 years. If the housing market corrects in the short term, they may not be able to recoup the value of the home by the time they move out.”
M Financial advisors are paying close attention to their clients’ exposure in equities markets. During a more than decade-plus run of unprecedented growth in these markets, equities investments seemed a sure thing, Massaro says. But what goes up inevitably comes down. A downturn, he says, impacts people differently depending on their goals and their investment timeline.
“The biggest risk to people closer to retirement is being over-allocated in the stock market,” he says. “If there’s a large correction sometime in 2022 or 2023, these investors won’t have enough time left in the markets to recover any short-term losses.”
Viewing investing as a long-term commitment gives clients peace of mind when the markets experience volatility, he says. M Financial takes the time to make sure clients understand everything that goes into their financial plan, and how that plan can be updated if their situation changes, he says.
“I just got off the phone with a prospective client who was 5 years away from retirement,” he says. “They don’t have a lot of money saved and never really thought of setting up a plan until now. Unfortunately, for a lot of us, that’s the call we get far too often. A lot of times, that’s too late.”
Another advantage of taking the long view of investments is that people tend to be less likely to panic over market fluctuations – especially if they know their financial plan takes into account their tolerance for risk, short and long-term goals, Fox says.
“A well-diversified investment plan is stress tested to take into account a multitude of variables that can go wrong and what could go right,” he says. “We run the numbers to make sure we’ve accounted for everything that we know could happen. But there are still situations that we can’t account for. I couldn’t have told you in January 2020 that the economy would shut down for months due to the Covid-19 pandemic.”
Fox points out that people who didn’t panic and stuck to their financial plans in the early days of the pandemic are making out well. Investing mistakes happen when people let fear of the unknown or fear of missing out steer them off course.
“People sometimes make decisions based on how they feel about situations. They let emotion get in the way,” he says, “and that’s when they make mistakes.
