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Creating financial certainty in a volatile economy

Nov. 15, 2023
The uncertain economy is rendering the financial planning models of the past obsolete. Now is the time to adapt and become your own financial advocate. Here’s how to maintain control of your investments.

The last three years have dramatically challenged conventional strategies for retirement planning. The landscape has shifted from the perception of an ever-rising bull market to a new era of significant uncertainty and volatility.

The COVID-19 money-supply expansion (the greatest in history) and the all-time-high US credit card debt, coupled with unbridled monetary and fiscal policies from the government, have elevated inflation to the highest we’ve seen in 40 years and created significant uncertainty about the future of the stock markets and the economy.

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The Fed fought back by raising rates at the fastest pace in history (nearly 500%, from 0.25% in March 2022 to 5%–5.25% as of the writing of this article),1 and their actions have resulted in a significant decrease in market liquidity. The money supply is falling at the fastest rate we’ve seen since the 1930s. Liquidity reduction has resulted in bank failures2 (with the risk of more to come), which in turn will lead to a credit contraction. Our economy is dependent on credit. Without it, the economy stalls, leading to recession, layoffs, bankruptcies, and other financial turmoil.

These realities are rendering the financial planning models of the past obsolete. Now is the time to implement plan B.

What’s different about the current economy?

Many subscribe to traditional retirement financial models by default because “that’s what everyone does,” and that’s what the financial industry sells. Investments like blue chip stock portfolios and the 60/40 allocation model are considered status quo, but these models are based on past performance. It’s short-term, linear thinking to assume that what happened in the past decade will by default occur in the next. There is significant evidence that we are experiencing a major secular shift that will render the coming decades radically different from the previous 40 years.

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The economy and markets are dynamic and ever-changing. You cannot simply hand your money over to a financial manager in a “set it and forget it strategy.” That path may be easy, but it won’t help ease your anxiety or give you any certainty about whether you’ll have enough for your future retirement.

As I’ve discussed in Dental Economics previously, if you abdicate your hard-earned nest egg to someone else to manage, you lose control.3 A significant portion of your wealth may be in a 401(k) lockbox until you reach age 59.5, while you’re stuck watching your savings ride the Wall Street roller coaster. Diversification is a myth on Wall Street. Marketplace efficiencies have removed any ability to insulate yourself from the fate of the rest of the market. Diversification is limited to buying different versions of the same thing.

It’s time to take control of your investments

The pathway to taking back control of your investments requires effort, intention, and commitment. Alternative investments (such as real estate) also fluctuate and come with unique risk factors. The inefficiency of investing in real, tangible assets creates a higher barrier to entry. This allows for those with the right connections and skill sets to create more wealth as long as they have the right access points and know how to take advantage of opportunities. It’s possible to orchestrate your own investments without playing by Wall Street rules. Alternative investments give you expanded options to modulate and pivot in response to changing market conditions.

Like most things in life, there is no one-step solution. You must take the time and effort to learn new skills and create a blueprint of where you want to be in the future. Just like your dental education, this takes work, because the environment is dynamic.

The world is shifting dramatically right now. You can’t sit idly by if you want peace of mind about your financial situation. With the right skill set, it is possible to fully enjoy the five freedoms: economics, time, relationships, health, and purpose.4

Unfortunately, many people just stay the course prescribed by financial advisors who have a vested interest in their clients continuing to ride out the market despite dangerous conditions and potential financial devastation. Remember the 401(k) losses, stock brokerage accounts, and mortgage defaults in the stock market crash of 2008 with the ensuing global Great Recession.5

Now is the time to rechart your course and adapt to the changing environment. Like it or not, we have to accept it—and better yet, find a way to use these changes to our advantage.

The great gains that many experienced over the last 14 years will likely be replaced with greater volatility and stagnant growth (i.e., profits). The last decade—and certainly the last 40 years—was a rare gift of tremendous wealth-building opportunity for my generation. Starting in 1980, there was a 40-year decline as interest rates decreased from a top federal funds rate of 20% all the way down to zero in 2020.

Soaring national debt combined with historic government deficit spending will maintain a strong tug-of-war between ongoing inflation (and higher interest rates) against a slowing and sluggish economy (recession). A growing appetite for replacing the US dollar as the global reserve currency will diminish the ability of the Federal Reserve to simply print money on demand. Many economists are predicting a deflationary period followed by stagflation like that of the 1970s. This scenario will require substantial changes to the financial models of the recent past.

Becoming your own financial advocate

Dental practitioners focus for years on acquiring the technical skills they need to create an above-average lifestyle through active income production in their practices. However, few make the reinvestment to learn how to successfully steward their savings into a net worth that can produce income to replace the need for their labor. This is a major missed inflection point in generating freedom and options at a far younger age than the typical retirement period of the 60s–70s.

These new skill sets include the ability to critically evaluate investments, mitigate downside risk, conduct due diligence at a strategic and tactical level, structure favorable terms, create a joint venture, and expand your network—all within the construct of measurable milestones to reach your freedom point well before the majority who continue to follow the path of least resistance with uncertain results. You do have a choice, but few understand this.

Adapting to the changing economy is not magic

Building a viable freedom plan is not a model of speculation or luck in hitting a once-in-a-lifetime home run. Unlike Wall Street, alternative investments allow you to adjust to changing market conditions, compounding the growth and profits over time without the volatility of conventional financial products. But it takes skill and a willingness to put those skills to work to adapt as needed. As with any area of life (business, staff management, relationships), change is hard.

Act now and learn the skills you need to orchestrate your financial future. The only path to financial certainty is the confidence of becoming your own financial advocate and developing the knowledge and self-reliance required to enjoy a lifestyle of lower stress and peace of mind, focusing on what really matters: your time and your memories. 

Editor's note: This article appeared in the November 2023 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

References

  1. Assets: Central Bank liquidity swaps. FRED Economic Data. Federal Reserve Bank of St. Louis. May 31, 2023. https://fred.stlouisfed.org/series/SWPT
  2. Fungacova Z, Turk RA, Weill L. High liquidity creation and bank failures: do they behave differently? International Monetary Fund. May 6, 2015. https://www.imf.org/en/Publications/WP/Issues/2016/12/31/High-Liquidity-Creation-
    and-Bank-Failures-42903
  3. Phelps D. Retiring on your terms: break from the majority and take charge of your money. Dental Economics. March 26, 2023. https://www.dentaleconomics.com/money/retirement/article/14289071/retiring-on-your-terms-break-from-the-majority-and-take-charge-of-your-money
  4. Phelps D. What’s Your Next? The Blueprint for Creating Your Freedom Lifestyle. Advantage Media Group; 2021.
  5. Rauchway E. The 2008 crash: what happened to all that money? A look at what caused the worst economic crisis since the Great Depression. History. September 14, 2018. Updated August 30, 2023. https://www.history.com/news/2008-financial-crisis-causes

When his young daughter was hospitalized with leukemia, David Phelps, DDS, was able to turn to his alternative investments, step away from his dental practice, and be by her side. From this experience, he created the Freedom Founders community in 2012 to help dentists and other professionals take control of their retirement investments to produce passive cash flow, security, and live life on their terms. To contact Dr. Phelps, visit freedomfounders.com.

About the Author

David Phelps, DDS

When his young daughter was hospitalized with leukemia, David Phelps, DDS, founder of Freedom Founders, was able to turn to his alternative investments, step away from his dental practice, and be by her side. He created the Freedom Founders community in 2012 to help dentists and other professionals take control of their retirement investments to produce passive cash flow, security, and live life on their terms. To contact Dr. Phelps, visit freedomfounders.com.  

Updated January 16, 2024

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