Will these be the Roaring 20’s?

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A Look Forward to the Next Decade Through a Financial Lens

In order to look forward, it is important to look back. Let’s take a moment to consider the past decade.

Even though “past performance is no guarantee of future results”, “those that ignore history are doomed to repeat it”, the past decade was one of the best in history for the stock market and other asset classes.

What Recession?

The recovery has been so strong that most folks have forgotten about the recession.

There has been and unprecedented explosion in debt issuance. According to CNBC, student loan debt grew by over 150% and now the average outstanding balance is $34,144. Corporate bond issuance has surged as a result of historically low interest rates.

Taxes rates were cut in 2017 for individuals and corporate taxes were cut even more. While the corporate tax cuts were made permanent, those for individuals will expire, if congress does nothing, tax rates will rise at the end of 2025.

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What Else Happened?

  • Russia annexed Crimea and was kicked out of the G-8.
  • Great Britain approved Brexit, and is trying to figure out how to make that happen.
  • Terrorist attacks spread throughout Europe and the Middle East
  • Mass shootings became a regular occurrence in our country
  • Smart phones became ubiquitous, and the rise in computer hacking, virus, phishing and other dark activities exploded, touching many individuals and businesses.
  • Data and identity theft have become commonplace. At the same time, we see a dramatic increase in online payments and transactions.

What’s Next?

There are many other significant things that happened in the past 10 years, here are 10 things to keep an eye on in the next 10.

  1. Taxes will be going up. The tax act passed in December of 2017 made permanent cuts in corporate tax rates. However, congress made the tax provisions temporary for individuals. So, on 1-1-2026, we will see taxes revert to where they were in 2017, unless congress acts to extend them. So strategize now to take advantage of lower rates.
  2. IRA’s are not good to leave to your heirs. The Secure Act went in force on 1-1-2020. One of the provisions eliminates the “stretch IRA” provisions we have enjoyed for decades. This means that if someone other than your spouse is the beneficiary of your IRA (Roth also), they will have to completely remove the funds from that account within 10 years or face significant tax penalties. If your heirs are in their peak earning years, their tax bite will be significant. You must consider how and when to spend this asset, or at least make a plan to minimize the taxes on your beneficiaries.
  3. There will be a lot of competition to borrow money. We currently have a federal budget deficit that is around a Trillion dollars a year and growing. The tax cuts were not offset by dramatic increases in the economy, so tax revenue hasn’t grown nearly enough to cover all the increased spending on the federal level. This means more borrowing.
  4. Don’t forget corporate debt. Along with the need for the federal government to finance the deficit, the level of corporate debt is 52% higher than it was in 2008 (according to Forbes)! Back then over 90% was considered “investment grade” when issued. Today, the credit quality is much lower, with only about 76% considered to be “investment grade”. A slowdown could cause a lot of this debt to default or lose a lot of value. These bonds are in a lot of bond funds, so check to see what you own.
  5. Risk assets are not paying much in the way of “risk premium”. When investors take more risk, they should earn more reward. However, given persistently low interest rates for the past several years, people have been turning more and more toward riskier investments because of the low yields on savings account and government bonds. This has inflated prices of many of these assets to levels that might not be sustainable. When the air goes out, many assets could lose considerable value. You need to plan accordingly.
  6. Student loan debt is pushing out a generation of consumers. As I mentioned earlier, student loan debt grew at an amazing rate in the last 10 years. Given that a recent survey showed that only 37% of this debt is being reduced by borrowers over that time. The rest is in default, forbearance, renegotiation, or borrowers are making wage-based payments that don’t reduce the principal. This seems to be slowing down investment, family formation and home purchasing plans for many who have left college with debt in the last decade or two.
  7. We are aging as a country. This past December, for the first time in U.S. history, we have more people over the age of 65 than under the age of 5. Historically, when the population of a country or empire gets older, their economy slows down. Older folks tend to consume more resources relative to their economic contributions. Older folks often sell stocks to provide income for retirement or downsize their homes. This could influence investment returns in the future.
  8. Expected returns are likely to be lower than the last 10 years. Wall street pundits are terrible at predicting returns for upcoming years. Every year people come out with predictions and every year almost all of them are wrong. However, there are a few analysts who have tools that are very good at predicting returns over time. One of those is Robert Shiller, the Nobel prize winning Economics Professor at Yale. He created an index, called the Cape-Schiller Index, which is currently predicting returns of under 6% from stocks over the next decade.
  9. Blockchain technology will become more widespread. Most people know of this technology through Bitcoin or other cyber currencies. However, there are many applications for using this technology for decentralized payments and transfers. Bitcoin and other cyber currencies are catching on in many parts of the world. Especially areas that are remote or “unbanked”, like parts of Africa where this technology is opening business opportunities for populations that have been left behind by the developing world.
  10. Identity theft and other online scams will increase. These are crimes that hardly ever get investigated. That means that most of us are on our own to protect our personal information and identity. We will need to be diligent about passwords, what we send as an attachment, and what emails you open. Any email that you weren’t expecting, check the address to make sure that is correct, don’t click on any links until verified (or open attachments). You should call the sender to verify, but use the phone number you have for the sender, not a phone number in the email. BE VERY CAREFUL ABOUT WHERE YOU USE ANY DEBIT CARDS. When your debit cards are hacked, they take your money, when a credit card is hacked, they take the bank’s money.

Obviously, there are other things that will evolve in the coming decade. The one thing I know for sure, the pace of change is accelerating, so staying aware of the changes and how they affect you will be more important than ever.

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You Are Not Alone in This!

We couldn’t go into these topics in much depth, but if you have questions, or want more supporting information on any of these, let us know and we will be able to share those items with you. Being open to these developments will help you to stay ahead of things and help you to Retire Happy!