Is The Trend Your Friend?

A trend is a tendency or inclination for something to continue into the future.

As a financial planner I like to have ideas about the future so I can plan better with my clients. Effective financial planning embraces all aspects of life. It’s the lubrication that enables you to live a more successful life.

Recognizing tends is part of the process of planning. We have no control over trends, so the issue is to figure out your response to a trend. This is the part you can control.

Here are five trends to think about going into 2022. A book could be written about each of these. I will only emphasize one or two things about each of them.

Healthcare

It’s all about COVID/Omicron. With some exceptions imposed by the government, you have to take control of your response consistent with your beliefs. I’m in the most vulnerable category because I’m in my 80s with a heart condition. So, I had the Moderna, two shots and the booster. I also had a flu and shingles shot.

Happy to say I had no adverse effects. I wear a mask around people anywhere. I wash my hands a lot. These are my personal choices. I’m sure you are making yours.

It’s almost impossible to do planning when you are sick.

Politics

Lots of potholes here as there is significant uncertainty. Some version of President Joe Biden’s Build Back Better bill may pass. Whatever might pass could impact your taxes, health plan, retirement plan and much more.

The polls indicate the Republicans will win the House and possibly the Senate this year. If that happens, there will be significant counterbalance to Democrat policies, especially those of the extreme left. The current trend may change significantly.

Economic

Economic infection by inflation is the trend. The Federal Reserve wants 2%, but we have about 5%. Is it temporary or indefinite? No one knows, yet there is no shortage of speculation.

Most experts don’t think it will be a repeat of the late 1970s. Back then, inflation was around 13%, and under then-Fed Chairman Paul Volcker interest rates went up to 20% to break the back of inflation. It worked. Hopefully, things won’t get that bad today.

We hold our breath as we pay much more at the gas pump, grocery store and everywhere else. When we pay more for the same amount of gas, that’s our personal inflation rate. Many expenses are up by much more than 5%.

Inflation forces us to tighten our spending and makes some of us dip into savings.

Environment

It’s all about climate change.

Many groups seem to be overplaying this to their own selfish ends. However, it is a serious problem.

I’m reminded of the year (1965) I spent in northern Greenland as an Air Force officer at Thule Air Force Base. As part of the survival training, I had to camp on the edge of the huge icecap. I am told that half the ice has melted in that spot. Scientific evidence shows the icecap is slowly melting. That’s real change.

Other issues deserve attention regarding the environment.

There are parts of the U.S. and the world with a serious water problem. Clean, drinkable water is hard to find in some locations.

The trend to resolve serious infrastructure problems will continue for years.

Investing

The trend in 2022 will be in favor of value investing.

If you are using mutual funds, there are several excellent value managers. One of the best ways to check them out is to go to www.morningstar.com.

I would also focus on U.S. investments. I would avoid emerging markets and European markets.

Large-cap stocks have had a good run. Some may continue to do well, but focus on mid-cap and small-cap stocks as well.

If you like to look for themes, consider funds or ETFs that include infrastructure, batteries, lithium and clean energy.

The year 2022 has the potential for danger.

Aside from our internal struggles, there are Russia/Ukraine, China/Taiwan and Iran/Israel. All three are potential powder kegs.

Consequently, keep 10% of your money in cash or equivalents.

And have a well-written investment game plan.

Include the amount of risk you can handle.

Your chances for a successful financial year are increased significantly if you have a written financial plan. There are well-defined steps to take if you work with a certified financial planner. The planner should be fee-only, committed to a fiduciary standard and a CFP.

And go to Broker-Check on the SEC website to check for any illegal or unethical activity.

Vern Hayden is a certified financial planner and the author of “Getting an Investing Game Plan.”