Weekly Brief: You’re Probably Going To Need A Backup Plan For Next Year

Weekly Brief: You’re Probably Going To Need A Backup Plan For Next Year

about 2 years ago3 mins

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You’ve probably noticed that the pandemic was still around in 2021, and it’s clear we’re going to have to organize next year’s to-do list around it too…

🕰 Recap

  • “Meme” stocks GameStop and AMC Entertainment jumped in January, as retail investor momentum picked up
  • Inflation – the rate at which the prices of goods and services rise – hit record high after record high through the summer
  • And as the pandemic surged again later in the year, US job growth came in lower than expected

✍️ Connecting The Dots

This year’s been one for the ages: the “real” economy – that is, adjusted for inflation – is on track to be almost 6% bigger than last year, thanks to strong growth in Europe, the US, and China of 5.1%, and 5.5%, and 8% respectively. Of course, 2020 was one of the worst years for economic growth since the Great Depression, so 2021 was always going to look like a bumper year compared to that calamity.

But there was still plenty to remind us that we’re not through the pandemic yet – not least the scenes of supply and demand lurching one way and the other. Demand was in full recovery, but last year’s absence of operational factories was still being felt: there were shortages of everything from commodities to microchips to cream cheese. That’s driven up inflation at a rate of knots: the prices of goods and services will be almost 4% higher globally by the end of the year than in 2020.

Despite all that, it’s been a relatively benign environment for investing. Take US stocks: the all-important S&P 500 has risen 24% and the tech-heavy Nasdaq 18%, partly as profit growth rebounded from 2020 lows. Commodity investors have benefited too, with oil and gas prices up 50% or more this year. In fact, every key commodity is up this year, with the exception of gold and silver. Their shortfall could be down to all the attention that cryptocurrencies – bitcoin, ether, challenger networks, and meme coins – have been getting this year: the market’s total value has risen from $775 billion in January to $2.2 trillion, while the amount of money invested in decentralized finance – or “DeFi” – projects hit $12 billion.

🥡 Takeaways

1. It’s all fun and games until interest rates go up.

The record-low interest rates of the last couple of years have made high-risk investments – whether crypto, private companies, unprofitable tech firms, or Reddit-inspired meme stocks – all the more appealing. Safer options like savings or government bonds have, after all, been paying practically nothing. But that’s set to change now that central banks are thinking about raising interest rates in a bid to curb high inflation – or, in the UK’s case last week, actually pulling the trigger. As professional investors get wise to what’s coming, the riskiest assets out there will be the first to be dumped from their portfolios, and retail investors could be left holding a very costly baby.

2. Finimizers are, by and large, well-prepared.

Some of the Finimize Community’s most popular investments this year suggests you’re well-positioned for 2022: one of your favorite exchange-traded funds (ETFs) is the Global X Lithium & Battery Tech ETF, which is set to benefit from the growth potential of electric vehicles. You’re keen on the Vanguard Total Stock Market ETF too, which boasts a very low expense ratio and a long, consistent track record, and is diversified across big, small, fast-growing, and cheap-looking US stocks.

🎯 Also On Our Radar

If the US Federal Reserve hikes rates three times next year and signals it’ll keep going (like it is right now), Bloomberg Economics expects the US to be bracing for a recession at the start of 2023. That’d be dangerous for the country’s stocks, which are hovering near bubble territory. But the effects will be felt much further afield: emerging markets’ debts will become more expensive to repay, and their currencies could take a hit as investors ditch them in favor of the US dollar.



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