Gen One Legacy Podcast

By some measures, last Friday Fed Chair Jerome Powell derailed the fledgling bull market rally in U.S. and global risk assets.

In eight short minutes, the central bank governor drove home the point that the Federal Reserve would do everything within its power to halt inflation, including bringing economic “pain” to U.S. households and businesses alike.

For the markets, it was a halting realization given the fact that the recent market rally had been predicated, at least in part, on the Fed pausing rate hikes and giving the economy some breathing room as various data points have shown that a U.S. recession is looming on the horizon.

But not anymore.

In today’s podcast, we discuss:

• What happened at Jackson Hole and why it was significant for the markets
• How expectations are set for market conditions, and what’s changed
• The role inflation and economic growth will play in market performance
• What market participants may need to see to solidify a market rally in the months ahead

Earlier this year, we wrote about the potential for two recessions in two years.

Now, it’s unofficially official: we’re in an economic recession for the second time in two years.

At least, that’s according to government data published this week.

And this news comes from the Bureau of Economic Analysis’ latest report last week, which showed that U.S. Gross Domestic Product, or GDP growth, contracted during April, May, and June, marking the second straight quarterly decline so far this year.

While there’s no consensus on what constitutes the definition of a recession, last week’s data print is consistent with an economic downturn.

Indeed, history has shown that ten out of the past eleven two-quarter GDP contractions have been associated with a recession.

So, from a historical perspective, there’s a good chance that the first half slowdown could be a precursor to a recession in 2022.

Be sure to read our latest report, where we discuss:

· What it means to be in a recession

· Whether we’re in a recession now

· How a recession might affect your

· How to prepare for a recession

· What a recession means for your investments

Inflation is on a lot of people’s minds right now.  And for good reason.  While we tend to hear about inflation in terms of percent changes in government reports, chances are, you’ve likely experienced its real effects in everything from higher prices at the grocery store, gas pump, restaurants, and utility bills.

Prices change all the time, so why should you care about inflation right now?  Well, what you need to know is that, when inflation stays high for a long time, it can potentially erode your ability to secure your future financial independence goals if you do nothing to prepare for it today.

In this episode we discuss:

• Why inflation is like a car traveling down a highway
•  How a dollar today isn’t like a dollar two decades ago
•  What’s causing inflation to speed up this year
•  How responsible the government is for rising prices
•  Three things you can do about inflation

With risk assets having pushed into bear market territory in May, some investors are asking whether now is the right time to get into the markets. On one side of this debate is a group of investors who look at the recent pullback as an opportunity to buy securities at a discount. On the other side is a set of investors concerned that prices will only move lower from here. Make no mistake, this question is relevant to investors today not only because of the magnitude but also because of the breadth of recent market declines.

For example, if we consider year-to-date performance for the S&P 500 index, what we find is that the first one hundred days of this year’s market performance have been brutal. Indeed, through the end of May, the data show that U.S. Large Cap stocks have had their worst year-to-date decline in the past forty years. Adding insult to injury, investors have had little place to hide given the fact that stocks and bonds across U.S. and international asset classes have all posted losses this year.

Why are markets selling off across the board? Well, the reasons behind this seemingly correlated selloff across major asset classes are manifold. But at its core, persistently high inflation and the prospects for an impending U.S. recession given ongoing logistics issues, rising prices, healthcare concerns, and the war in Eastern Europe have made market participants more sensitive to the effects of less favorable central bank policy and the weaker corporate earnings outlook.

So, is now the right time to get into the markets? Well, in our latest podcast, we discuss why the question of whether to get into (or out of the markets) is a misnomer when it comes to the success of a long-term investor. Indeed, we illustrate how trying to time entry (or exit) points and missing even ten of the best days in the markets could be a setback for growing or preserving your investment portfolio for the long term.

What’s the solution?

Well, rather than asking whether the timing is right, we lay out a framework for developing and maintaining a disciplined investment process to weather market uncertainties.

Most driven individuals on their path to financial independence mastery know that you need goals to get to the next stage in life. And when it comes to money, many individuals have plans to increase their earnings ability, improve their lifestyle or save for long-term financial security. Nevertheless, even the most ambitious individuals quite often find that their goals fail within weeks or months into their endeavor. Why? Because they set meaningless goals.

So, what is a goal? A goal is a future or the desired result that you envision, plan for and commit to achieving. Many well-intentioned individuals set specific, measurable, actionable, realistic, and timebound (or SMART) goals. And goal-setting can be as simple as striving to wake up at 4 am each morning to exercise for 15 minutes so you can lose five pounds in a month or as ambitious as starting a business from the ground up.

When viewed in isolation, a well-defined financial goal may appear virtuous or valid on its surface. But, when it’s out of context with what’s essential to you, your goal likely will become meaningless and fail because it’s not aligned with what matters most in your life. Certainly, determination to achieve an objective may initially propel you towards your aim, but soon enough, willpower fatigue likely will set in, and you’ll probably end up reverting to old financial habits.

Alternatively, you could push toward your financial goals on willpower alone, mistaking effort and progress as measures of success as you propel forward only to find that the object of your intention is hollow or unappealing once you’ve attained it.

Goals in and of themselves are meaningless. They’re simply a means to an end. What gives a goal meaning is its transformative power to shape and change who you are so that you can have the resources you need to experience a life worth living.

Two recessions in two years. Is it possible? Well, calls for a U.S. recession have been on the rise recently following the Fed’s decision to raise rates at its March FOMC meeting. To be sure, given several factors already in play, it’s possible that we could see an economic slowdown later this year or even early next year.

While some market watchers have suggested that policymakers could simply stop raising rates if a downturn emerges, the reality is that the Fed’s credibility and its playbook are considerably changed from where it was two years ago.

Make no mistake, at this moment, the U.S. economy is doing well. And recent data suggest that growth has been on a solid footing since the COVID-related lockdowns eased last year. Nevertheless, various developments related to monetary policy uncertainty and rising geopolitical tensions suggest that the road to U.S. economic growth likely will face some headwinds in the year ahead.

Indeed, the bond market, typically a canary in the coal mine when it comes to the health of the economy, is now indicative of heightened financial and economic stress as escalating war tensions and rising interest rates have led to yield curve flattening. And too much flattening could be an early indicator of an impending recession.

This outlook has led some investors to ask whether there is anything they should be doing now to avoid downside risks related to a market or economic downturn. The truth is that many investors have been caught flat-footed by trying to time the markets during similar periods of uncertainty.

And that’s why during times like these, it’s essential for driven individuals on their path to financial independence mastery to focus on an approach that has worked time and time again: consistently executing on a well-defined financial plan.

Words seem to fail when attempting to describe the horrors of war currently faced by the people of Ukraine. Since last Thursday, millions of innocent Ukrainians have been displaced and hundreds killed following Russia’s invasion of an Eastern European democracy.

Indeed, world leaders have since responded by providing Ukraine with financial and military support while imposing heavy economic and financial sanctions on Russian President Vladimir Putin and his cronies. Today, much of the world looks on with bated breath, hoping for a quick and triumphant victory for the Ukrainian people.

How and when this war ends remains largely unknown. It could end tomorrow or persist for weeks to come. Indeed, we’re hopeful that delegates from Ukraine and Russia can find a way to end this war diplomatically. Even so, as we pointed out in last week’s note, a seismic shift in the geopolitical status quo could lead to economic spillover effects that likely will impact US households for months or even years to come.

So, this leaves many asking, what do these developments mean for my finances, and is there anything I should do right now to protect my wealth? Well, here are six points you may want to consider when it comes to guarding your money during periods of uncertainty:

#1 Expedite big-ticket purchases
#2 Revisit your lifestyle spending and savings plan
#3 Top up your emergency savings fund
#4 Adjust your expectations for employer bonus or equity awards
#5 Avoid timing the markets
#6 Rebalance international risk exposure

The S&P 500 index fell nearly four percent intraday on Monday, January 24, making for one of its most volatile trading sessions since September 2020. Heading into this period of instability, investors had good reason to believe that the markets were heading for a collapse. Rising inflation, concerns about the Omicron variant, the potential for war with Russia, and a Fed poised to aggressively raise interest rates amidst a clouded U.S. and global economic outlook had seemingly overshadowed any positive catalysts for an upward market move.

With so much uncertainty on the rise, and policymakers poised to drain liquidity from the financial markets, a key question for many investors is whether we are on the precipice of a prolonged market selloff. Certainly, some market watchers and prognosticators are making the rounds on financial media and arguing that this week’s volatility is setting the stage for lower equity prices ahead.

Anecdotes aside, historical data indeed suggests that a period of market weakness in risk assets is likely on the horizon after this week’s moves. That said, however, there’s still a case to be made for avoiding panic and remaining committed to a long-term investment strategy amidst solid economic and corporate fundamentals. Indeed, it’s during these times of increased market uncertainty that financial independence masters like yourself preserve their wealth by adhering to their disciplined asset accumulation and retirement distribution strategies.

Who doesn’t like a fresh start? The beauty of New Year’s Resolutions is that we all have an opportunity to fully commit to losing weight, getting organized, or finally saving more money at the turn of the calendar year.

Whether you want to admit it or not, however, the chances are that the work you’re about to put into one or more of your financial resolutions this year likely will soon end in frustration and disappointment. So, what can you do to ensure that your financial resolutions stay on the right track heading into the New Year? Well, one way is to focus your goals on “becoming” rather than “doing.”

Whether you’re earning six figures and broke, or simply trying to take control of your finances, doing the work of learning a new financial management technique, determining your “retirement number” or achieving some material outcome may not be the approach you need.

What might better suit your situation and help you stay committed to and crush your New Year’s resolution is reframing your relationship with money, rewriting your money scripts, and becoming the master of your financial independence journey.

Our latest blog post discusses how you can shift from Doing Mode to Being Mode to achieve your financial resolutions and deal with resistance along the way.

Benefits Enrollment is just around the corner. Do you have what you need to make critical choices at this vital time of the year?

Now, while benefits elections might seem like a routine administrative task, the decisions you make during this crucial election period could significantly impact your finances for years to come.

But for many of you out there, open enrollment might feel like a maze of features and benefits that can leave you feeling so confused and overwhelmed that you resort to box-ticking just to get it over with.

And so, what if we could change the narrative this year?

What if this year was the year where you finally stepped off the default path, and made your benefits elections with confidence?

What if this year, instead of rushing through the enrollment process, you mindfully took your time and opted into coverages that align with your lifestyle needs?

And, so, how do you achieve this outcome?

Well, this approach begins with a game plan for navigating the maze of health plans, insurance options, and fringe benefits available to you.

More specifically, when you know how to approach your benefits book, which common pitfalls to avoid, and how to select your coverage options, you can make wise choices this benefits season without being overwhelmed.

While we strive to focus on long-term market trends related to achieving financial independence success, we believe that the Black Friday selloff is a canary in the coal mine as we look ahead to the coming year.

Certainly, low volumes and technicals contributed to the sharp market decline. Still, the broader narrative underlying market sentiment is concern about government policy response to a seemingly never-ending healthcare threat.

In many ways, the Covid outbreak is shifting from pandemic to endemic in nature. In other words, Covid is likely here to stay for an indefinite future.

That’s why a key risk to market sentiment today isn’t another outbreak per se but rather near-sighted government policies that enact near-term economic pain while failing to acknowledge the long-term nature of the healthcare crisis.

In today’s podcast, we’ll discuss why this changing narrative is essential for economic growth in the coming year and what you can do to position your finances for long-term success as inflation and market uncertainty rise in the coming year.