The Wiser Financial Advisor Podcast

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Forecast 2022

What’s in store for us financially in 2022?  Recently host Josh Nelson sat down with Jeremy Busch, fellow Certified Financial Planner, to set forth a  financial forecast for 2022. Notably, they talk about the market and the economy, and really what experts are saying might guide where we’re going through the remainder of the year.


Wiser Financial Advisor – Forecast 2022

Hi, Everyone. Welcome to the Wiser Financial Advisor with Josh Nelson, where we get real, we get honest, and we get clear about the financial world and your money.

This is Josh Nelson, Certified Financial Planner and founder and CEO of Keystone Financial Services. We love feedback and we’d love it if you would pass it on to me directly: . Also please stay plugged in with us, get updates on episodes and help us promote the podcast. You can subscribe to us at Apple Podcasts, Spotify or your favorite podcast service.

Let the financial fun begin!

Recently I had the opportunity to sit down with Jeremy Bush, fellow Certified Financial Planner, to set forth our forecast for 2022. Notably, we talked about the market and the economy, and really what experts are saying might guide where we’re going through the remainder of the year. But first, this show is brought to you by Keystone Financial Services, a wealth management firm based in the land of Love, Loveland, Colorado. At Keystone Financial Services, our mission is to bridge the gap between knowing and doing in the financial lives of our clients. We are here to provide unbiased advice and guidance. We are an independent fiduciary and all of our wealth advisors are Certified Financial Planners, the gold standard in the financial planning industry. Our goal is to replace uncertainty with confidence and clarity in your financial life by planning with somebody who has experience and has your best interests at heart. That is hard to come by these days with so much information out there and so much uncertainty in today’s world. Take the guesswork out of your financial future and contact us today by visiting .

Today we’re going to talk about the pandemic recovery. This is something that I think is going to play itself out over years, not just months or quarters like we once hoped. It’s had a pretty far-reaching impact on the global economy. A lot of companies and a lot of families have had some tragic things happen. Certainly, bad things have happened as a result of the pandemic, but also good stuff has happened that we can be grateful for. Here at Keystone, we’ve always used education and technology to communicate with our clients wherever they are around the country in different States. For example, this podcast has been extracted from a webinar we gave in early February 2022 for our yearly forecast on the economy.

So, unemployment did make steady gains in 2021. We’re down to 3.9% unemployment and if you talk to just about any business owner that you know, right now their biggest challenge is that they can’t find enough workers to come in and get hired. We talk about supply chain problems but part of the supply train issue comes down to not having enough people. Not enough dockworkers, not enough people to pull the trucks up and load them and go off to get supplies where they need to go. The percentages vary by men and women and different races and so forth, but overall, that unemployment rate is really low right now. It’s to the point in the US that we’re considered at full employment. In other words, most people that want a job can get a job.

Just to be clear, these numbers never go to zero. Full employment is considered to be in the 3, 4, and 5 percent range. Up until the late 90s, full employment was said to be 5%. Now we’ve gotten even lower than that. What that means is that businesses are having a hard time getting employees. This is something that is going to play itself out, regardless of the pandemic. We’re down to 61.8% labor force participation and the reason I want to focus on that number is because that’s something that’s been going down anyway due to about 10,000 people a day in the U. S. turning age 65. That’s the baby boom, and we’ll continue to have that for some time. That’s a lot of people about ready to leave the workforce if they haven’t already. Medicare is a big factor in that, because Medicare starts at age 65. Many people wait until they get Medicare benefits before they retire, because it’s really, really expensive to go out and buy health insurance on your own when it’s completely out of pocket. Medicare usually is much less expensive than whatever you would get on the open market.

Also, we’ve seen a couple of other unintended things. The stock market has done pretty darn well, and the real estate market has done pretty darn well during the last couple of years. This has made people feel a lot wealthier, whether they are or not—which gets them wanting to retire and move on to do other stuff.

We were already facing the labor challenge before COVID. If COVID had never happened, we’d still be having this challenge, especially in the US, because we haven’t had enough population growth for years and years. We’re barely replacing ourselves. So unless we start having a lot more babies soon or we allow more immigration, we’re going to continue to see a challenge of not enough workers of working age. This will continue to be a challenge. And as always, especially in the United States, often the solution to any kind of a big problem is technology and innovation. So we’ll continue to watch those categories.

Keep in mind that there’s a big shift right now regarding education. From a training standpoint, it may not be a four-year college degree that somebody needs to be able to fill the positions that are open. If somebody is going to be a plumber or electrician, maybe they just haven’t had the proper training. There’s lots of discussion happening about that right now.

Regarding inflation, we’re going to talk about that a bit. The best definition of inflation really is just too many dollars chasing too few goods. And inflation will make a profound difference as far as where the economy is going and how the Fed reacts. Mohamed El-Erian used to be the manager over at PIMCO and now he’s one of the largest asset managers in the world, so he’s someone we pay attention to. He recently said that the Fed’s delayed and slow reaction to inflationary pressures has unfortunately increased the probability that it will have to slam on the brakes by raising rates very quickly and at a more aggressive pace than it would have if it had started to tighten policy earlier. And that’s our view as well. Ultimately, I think the Fed and their policies could be too slow and too fast. We’re concerned about whether they can get it just right. And if they don’t, there are big consequences either way.

Jeremy: They’ve got some interesting things that they do. Primarily ,they will either buy or sell U.S. Treasury bonds and things of that nature to banks. If they’re buying from banks, basically they’re giving the banks cash. If the amount of cash a bank has increases, they have the ability to lend more money to people. Thus, if people are being lent more money, then they have more money to spend. Really, 70% of the United States markets are people like you and me spending money. So if people like us have money to spend, that’s a good thing for the market. But also, if we have too much money to spend and maybe not enough goods to spend that money on, that’s when issues start to happen.

Another huge thing going forward that we see every day, involves the geopolitical standpoint of things.

We could easily add on China, Russia and Ukraine right now. That’s throwing in quite a bit of uncertainty in the markets and it does have some lasting effects. China being a huge part of the world economy, their economic growth is slowing and they’re seeing a lot more regulatory enforcement. The key thing the market is seeing as far as China, is Chinese companies delisting. Overall, there’s about $1.5 trillion of Chinese money and Chinese companies in the New York Stock Exchange, so that’s a pretty big chunk. And in order to get on the New York Stock Exchange, typically companies have to prove their value, prove their worth. They do this through financial statements. They have to do it upfront, and quarterly every year, and then annual statements as well. Now what’s happening is, Chinese officials are refusing to allow access to these Chinese company financials. So the New York Stock Exchange is saying, “Hey, either pony up on these financials or we are going to delist your $1.5 trillion of Chinese companies on here.” They’ve never in the past withheld these things. They’re calling them state secrets for all these Chinese companies. That is an issue in listings of foreign markets, so that’s definitely something to keep an eye on as we’re moving forward. We’re not throwing a whole lot of money into Chinese stocks by any means at this point, but definitely every portfolio has international holdings, so it’s things like this that we keep an eye on moving forward and see how it plays out. It’s going to be an ongoing saga.

Josh: Yeah. And for anybody who’s feeling left out like, “Hey, I think I should have invested in China,” believe me, you’ve got stuff invested in China. We all do. Global companies that we invest in or spend money at—there is a tie to China because they do the largest amount of manufacturing that we have right now. Many companies are entangled, right? You’ve got Chinese exposure whether you know it or not.

Jeremy: Absolutely. And then of course, bond yields are the other kind of function of the Fed. Another tool they use is interest rate increases, and so a couple weeks ago now the Fed had a meeting during which they signaled that of the two things they do–either buying or selling bonds back to banks and raising interest rates—they were not going to raise interest rates just yet, but they did signal they were going to stop buying more bonds and things from banks, and let whatever bonds they do have on the books mature, thus taking more money out of the banks’ hands. They’ve already started doing the bond thing. There is another meeting coming up here in about the middle of March. Everybody is guessing that they are going to make some kind of interest rate hike, but we don’t know exactly what that’s going to look like yet, if it’s going to be a quarter point, a half, .75 or what. The last meeting suggested they’re taking steps to pare things down a little bit but were afraid to get too aggressive too fast. Is that the right path? Economists are split. Some say it’s too little too late right now. Some say don’t get going too fast. This is where the art form of the Fed really comes into play: can they ride that line right down the middle where they’re not pushing it too fast, but also not falling too far behind?

We’re going to see some interest rates rise. If history has anything to say about it, the Fed usually goes a little too long and gets a little too aggressive at some point and then forces us into a bit of a recession, at which point the market and the economy corrects itself.

Josh: Oftentimes, there’s a big period of prosperity afterwards. Even with all the data and artificial intelligence and everything that we’ve got as far as tools now, there are still way too many factors, way too many unknowns to be able to be really precise about this, so we’ll see what happens. About every six weeks or so they meet, and we’re expecting that it’s going to be a half point increase in March, but we’ll see, you know. A lot can change. For example, let’s say that there’s an invasion of Ukraine by Russia and it roils the global stock markets and global money supply. I think you are going to see the Fed take a hard look at that and decide maybe to be a little bit easier. So these are the things you don’t want to bet on. You don’t want to try to time the market based off of these things.

I think people are in a bit more altruistic frame of mind about the market and the economy. One big theme that has been pushed pretty hard over the last few years has been ESG investing which stands for Environmental, Social and Governance investing. Instead of just looking at the dollars and cents, it’s looking at other factors, and there are a lot of them. More and more, investment portfolios and experts are looking to this to guide some of their investment decisions. The reason for that is number one to align investment strategies with their organizational values for whoever you’re looking at. In other words, values can be very different from organization to organization. You may have heard of activist investing to influence corporate behavior. That’s nothing new, but big investment portfolios sometimes can have big sway over corporate decisions to minimize headline risk and to generate higher risk-adjusted returns. Of course, we always want to see that, right, because people don’t invest in something because they don’t want to make money. We want to make money, and then finally to make a better world. You’ll notice that more and more portfolios and companies are incorporating this ESG in their strategy. At Keystone, we actually do have an ESG-only strategy for those of you who are interested. If that’s important to you, the good news is that you can do it in a very cost-effective way now. We’re actually seeing better performance and very low cost ways of doing that, so let us know if that’s something you want to talk about or somebody you know wants to talk about.

Jeremy: Yeah and honestly too, Josh, what we’ve seen over the past couple of years is regular non-ESG portfolios start to include ESG holdings in them because those ESG holdings have been doing better than their non-ESG alternatives.

Josh: Yeah, we definitely have more people that are younger bringing that up as a topic. And it’s great that those values can be accommodated. Another thing to note is that ESG investing isn’t an all size fits all. For some people, ESG means something different from somebody else.

So, moving along with our forecast, the Business Roundtable survey found that CEOs expect the economy to grow by 3.9% year over year in 2022, which sounds great. The other thing to keep in mind is that if inflation is running at 6, 7, 8% and economic growth at 3.9%, that doesn’t sound so good. It actually means you’re going backward.

Again from the Business Roundtable, here are some of the concerns coming up as far as positives and negatives. One of those is that companies expect to hire more employees if they can find them. Increased capital investment is an area where all the extra earnings that companies are reporting right now is going to go—to grow sales and then benefit from the infrastructure investment in the JOBS Act, the legislation that passed last year. That money will not come out all at once, but some companies expect to benefit from it.

It’s a concern that COVID-19 is still here. This is not going away, but I don’t know that it’s going to have as big of an impact as it has during the last couple of years. And again, something that’s changing is labor costs. That could be a challenge and it can also drive inflation. We’re all having to pay more for stuff, and we’re seeing that in a big way right now. And then tax increases. Even though we haven’t seen any broad tax increases here recently, and there were some proposals on tax rates this year, we didn’t see it pass. The Build Back Better plan would have changed the tax code fairly drastically. Many people would have seen tax increases, but that doesn’t mean you’re out of the woods. If you look back to the legislation that was passed back in 2017, many of those tax cuts were not permanent. They would phase out and we’re starting to come up to some of those years where some of these tax breaks and tax reductions were going to be expiring. That’s something we’re going to be watching very closely as well as legislation.

So geopolitics, we talked about that. Ukraine certainly is in the headlines every day right now. Can you make investment decisions based off of this stuff? Not really. If you made your investment decisions based off of geopolitical stuff, you’d probably never invest in anything. Maybe Russia invades Ukraine. Will it have a big impact on the market and the economy globally? Yep, certainly. But it also might not happen at all. The bottom line: bad stuff ends up happening. Sometimes it impacts the market, sometimes it doesn’t.

We like smart people. We like to pay attention to some experts. Overall reporting shows a significant reduction in concern about geopolitical risk. We actually see that as a bad thing because if people don’t have concerns, it’s like Warren Buffett’s quote: “You should be fearful when others are greedy and greedy when others are fearful.” I think it’s better to be fearful. In other words, when everybody else says, “Oh, everything is great,” it may be time to think about that and at least have it in the back of your mind. It could be that the market hasn’t fully priced in some of these geopolitical risks that could come into play.

There are a lot of great technologies coming down the pike and many of our clients are working on this, or their company is. Things like 3D bone implants and 3D organ printing in general—that stuff is coming along even in 2022. Right now, they’re predicting that two companies will start using 3D printed bones and that it will be widely available. Think about that and then go another step and think about organ replacement. How many people have died waiting for a kidney and being on these organ donation lists. If we’re able to do this and they think they can; they’re quite confident that they’ll be able to 3D print our own organs, with no rejections, using our own DNA. These are things that could just fundamentally change the game. Think about why people have died in the past and some of the technologies, the medical advancements that are coming could cure major stuff like Alzheimer’s dementia, cancer, heart disease. Already, if we catch them early enough, most cancers are treatable or curable. So there are some good things out there, mostly with technology driving these solutions to problems.

VR workouts. I don’t know how many of you have been on some type of a virtual augmented reality type of technology. You know, talking about the metaverse, we’re still trying to wrap our minds around what that means exactly. But new VR headsets with fitness features are coming out in 2022. Full workouts that you can do in virtual reality. To me, that sounds a little bit dangerous. We want to be a little bit careful, right, if we’re running around and doing exercises with goggles on our face? Right now we laugh about it, but how many other things did we laugh about years ago that are now commonplace?

Ultimately, where’s the economy going? Nobody really knows, but we do have some guesses at least. We’re hearing numbers anywhere between 3 to 5% from most experts right now. We think it’s almost a certainty at this point that we’re going to have a tight labor market going forward. That’s a good thing in a lot of ways, because people can get jobs. I think a lot of the economic struggles we’re having is trying to get people back to work because many people retired early or other people have figured out, “Hey, we used to place a lot of value on both spouses working full time.” Now one of them might be working part time from home or not even at all. So a lot of situations have changed where people have either permanently or temporarily left the labor market.

Finally, the economic backdrops include slower growth and tightening monetary policy. This is from our friends over at Schwab, but really the whole point here is that they’re not recommending people get out of the market. They’re not recommending people get into the market. What they’re recommending is discipline. And if you’ve got a great investment advisor, a great financial planner like us, we’re going to be able to inject some discipline into the investment decisions you’re making. Sometimes they’re very boring like diversification and sticking to an investment strategy that works overtime. Really, that could be a lot more beneficial to you as opposed to doing detrimental things like putting your eggs all in one basket. The way we protect ourselves is through diversification and being very careful about the risk level that we’re taking in your portfolio.

Just know that your team is here. We’re here to help you from a financial planning standpoint to make sure that your portfolio is right for you; that the investment moves, the financial moves you’re making are right for you. That’s our role as a fiduciary and, being Certified Financial Planners, that is our role legally as well. We have to give you advice that’s in your best interest. We actually have a legal obligation to do that as a Certified Financial Planner acting as a fiduciary. We don’t work for a big brokerage firm. We’re independent, meaning that we work for you. So ultimately, that’s our motivation.

We wanted to open it up for Q&A. Jeremy, what do we have?

Jeremy: Josh, you kind of hinted at this one. Crypto. What’s our Take on it; are we using it in current portfolios right now?

Josh: Yeah, it’s a great question. We actually did an interview with Bill Barhydt , who’s the founder and CEO of Abra, which is a big cryptocurrency platform. We want to educate you because it is having a profound impact on the markets. At this time, we’re not recommending that to clients. It’s just too darn volatile, so not to minimize it at all; it’s having an impact on markets and we’re watching it, but it’s not something we’re recommending people put their money into at this time.

Jeremy: How is Keystone outpacing other financial investment firms?

Josh: Yeah, good question. I mean everybody’s portfolio is going to be a little bit different, right?

We gear everything to a risk number, and for those of you who have been working with us for a while, you know that everybody has a risk number for risk assessment. That risk number is what we’re basing your portfolio on, as far as how we build it, because we’re trying to get just the right amount of risk for you with what you’re comfortable, then trying to get as much return as we possibly can based on that risk level. Do we look at things like the overall markets as far as the S&P 500 and the Dow and how portfolios do relative to the rest of the market? Absolutely. We’re always measuring that stuff and we show you that during your financial reviews, but overall, most of our portfolios are based off index funds or ETF’s we use as investment vehicles. That doesn’t mean we’re restricted to that. We can use mutual funds. We can use individual stocks, bonds, real estate, investment trusts, many, many things in our wheelhouse. But oftentimes we will be tracking broad markets and using the research we’ve gotten in our own knowledge of your situation to build your portfolio.

There’s a recorded version of this forecast with visuals on our YouTube channel. Easiest way to find that is to go to . Up in the upper right hand corner, you’ll see our social media links and by clicking on our YouTube channel you’ll see our archive of past presentations as well as this one.

We really try to cut through all that the confusion with the gazillion bits of information out there and simplify how it applies to your financial life.

That being said, thanks for joining us. For those of you who are clients, thank you for your business. For those of you who are not clients, thank you for your future business and we hope you have a great day. If you’re enjoying the Wiser Financial Advisor podcast, please share this out to your friends, coworkers, your family. We are growing like crazy and having fun at it, so please share this out. Also, it helps us to subscribe on your favorite podcast service and give us a rating. That helps us out as well.

This episode has been prepared for informational purposes only and is not intended to provide and should not be relied upon for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors. Investment advisory services offered through Keystone Financial Services, an SEC registered investment advisor.