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Time To Reboot Your Financial Plan

Sometimes, it’s better to reboot the machine and start over when your computer is acting up than to go through the hassle of troubleshooting and implementing patches and workarounds without really solving the problem.

Like your computer, maybe it’s time to reboot your financial plan…

With all the disarray in the world and economic fallout, for most investors, the old way is just not going to cut it. Instead of readjusting a plan that doesn’t work for today’s political and economic clients, investors should consider rebooting their plan and starting from scratch.

The current economic, social, and political landscape makes the world unrecognizable compared to just five years ago. COVID was a major culprit for many of these changes, but many were man-made.

Inflation has been one of the major economic crises of the past five years. After several rounds of stimulus to fight COVID-induced job loss and recession, the flood of free money into the economy has finally caught up. Since 2021, inflation has been hitting record after record with no immediate relief in sight. Runaway prices have even forced the Fed to abandon its policy of maintaining low-interest rates in favor of job creation – announcing at least four rate increases in 2022 and 2023.

Rising interest rates are a bitter pill for reining in runaway prices.

The higher cost of borrowing will dent both consumer and business spending – putting a dent in corporate bottom lines and potentially impacting jobs as businesses scale back.

Inflation is not the only way COVID has impacted the world in the past few years. Social distancing and lockdowns have had the effect of dividing neighbors and the country as a whole. This has spilled over into the political arena with groups fighting over our basic freedoms in the name of health and safety, essentially creating a cold Civil War where uncertainty and chaos reign supreme.

We can’t talk about recent changes in the world without talking about geopolitical upheaval and armed conflicts. We have the border crisis in our backyard and the botched withdrawal of our military from Afghanistan. Then there’s the whole Russian invasion of Ukraine that has thrown the world into chaos and hit Americans at home at the pumps as gas prices have skyrocketed.

The geopolitical landscape is not the only landscape that has changed in recent years. The economic landscape has changed dramatically as well. The rollout of social distancing and lockdowns gave rise to the remote workspace, and many workers who were impacted by downsizing turned to freelancing and side hustles to get by. The so-called gig economy has exploded with food delivery services like Doordash, Grubhub, Postmates, and Uber Eats flourishing. These side hustles have kept many afloat economically.

No discussion of changes in the economic landscape would be complete without a discussion of all the new currencies hitting the markets.

Besides the rise of multiple new cryptocurrencies, we have also seen art and original digital creations leveraged into a new form of exchange and currency in the form of NFTs (Non-Fungible Tokens). Gaming platforms are even turning these NFTs into forms of compensation for playing online games.

What’s the lesson investors can learn from the past five years?┬áThe old ways no longer apply.

The old ways of investing can no longer be sustained in a quickly evolving and changing economic and geopolitical landscape.

When did you go to high school or college? What did you learn in college? Economics? Business Management? Accounting? Sales? Chances have you discussed an economy that revolved around traditional goods and services, but did you discuss the future explosion of freelancing and the gig economy upending employment? What about the digitization of currency, art, and even real estate as a virtual metaverse becomes more and more a reality?

The world has hurled headfirst into new economies and markets. I’ll ask you this. Did you change any of your financial plans along the way? Have you adjusted your investment approach at all, or are you still operating in the economic system of 2001?

If your economic principles are stuck in a loop in 2001, maybe it’s time to reboot your plan.

Still uncertain about a reboot? Here are the questions to consider:

  • Where did I get my investment plan?

  • Is my current investment plan updated for 2025 and beyond?

  • Does my investment approach rely too much on chance and factors outside my control?

  • How do I think about risk in 2022 vs. 2001?

  • Do I still associate risk with alternatives?

  • What are my current values?

  • Do my values and goals align?

  • Will my current investment goals get me where I want to go?

  • Will my portfolio profit from uncertain times?

  • How long would my investments sustain me financially if I were to lose my job today?

If you’re in line for a reboot, here are some top elements you may not have considered before that you should now include in your reassessment, reboot, and realignment:

  • Throw out all your preconceived notions of risk vs. rewards. There are, in fact, assets that exist where risks can be reduced while increasing returns.

  • For assets with high risk-adjusted returns, consider alternative assets in the private markets.

  • Consider an alternative investment strategy that doesn’t revolve around speculation and timing. Think about an investment strategy that revolves around cash flow.

  • In addition to cash flow, consider assets that appreciate over time to give you a one-two punch for building wealth.

  • Consider investment classes that offer significant tax benefits that will allow you to keep more of what you make.

  • Think about an investment approach that will allow you to sustain your quality of life even if you lost or voluntarily gave up your job.

MIKE AYALA

MIKE AYALA

Mike Ayala has owned and operated mobile home parks since 2007, and has been active in construction and management since he was 15 years old. He graduated from the Associated Builders and Contractors 4-year project management program at age 22 and then became a licensed instructor. He is also the host of the Investing for Freedom podcast.