Welcome back to the net worth podcast.
Speaker 1: This week we are diving into understanding the current economic landscape and how it directly impacts your net worth.
Speaker 2: Drawing insights from the latest edition of Noyack Wealth Weekly.
Speaker 1: This is a deep dive specifically designed to equip you with smart financial moves for navigating uncertainty.
Speaker 2: Check out the full edition on our website wearenoyack.com.
Speaker 1: That’s we are wearenoyack.com.
Speaker 2: OK.
Speaker 1: Let’s let’s unpack this.
Speaker 2: I think many of us have been feeling a bit uncertain about where the economy is actually headed.
Speaker 1: You hear one thing one week, something totally different the next.
Speaker 2: This edition of Noyack Wealth Weekly, though, it really tries to cut through that noise.
Speaker 1: It breaks down the mixed signals we’re all seeing.
Speaker 2: And, you know, for your personal net worth, getting a handle on these signals isn’t just helpful.
Speaker 1: It feels pretty crucial right now.
Speaker 2: Yeah, it really is.
Speaker 1: What’s uh fascinating in our analysis is how we sort of lay out three main possibilities, three economic scenarios that could play out.
Speaker 2: Each one has, well, pretty different consequences for your finances.
Speaker 1: We’re talking about maybe recession.
Speaker 2: or that word stagflation that keeps popping up, or the one everyone’s kind of hoping for, the soft landing, you know, where the Fed manages to cool inflation without actually crashing the whole economy.
Speaker 1: Right, the ideal outcome.
Speaker 2: Exactly.
Speaker 1: So this edition starts by looking at the current data.
Speaker 2: And what it shows is a U.S.
Speaker 1: economy that’s, well, it’s slowing down, definitely, but it’s not actually shrinking yet.
Speaker 2: Like Q4 2024 GDP growth came in at positive 2.3 percent.
Speaker 1: OK, positive 2.3 percent.
Speaker 2: but that’s down from Q3, right?
Speaker 1: Which is what, over 3 %?
Speaker 2: Yeah, Q3 is 3.1%.
Speaker 1: So you see the slowdown.
Speaker 2: We’re still moving forward, but easing off the gas pedal a bit.
Speaker 1: Got it.
Speaker 2: And inflation, that’s the other big piece of the puzzle.
Speaker 1: Huge piece.
Speaker 2: And while it has cooled off a lot from that crazy 9 % peak back in 2022, thank goodness it’s now hovering around, 3%, which is better, but still not the Fed’s 2 % target.
Speaker 1: So sticky, then.
Speaker 2: Yeah, kind of sticky.
Speaker 1: And that means interest rates.
Speaker 2: Well, they might stay elevated longer than we’d like.
Speaker 1: That hits everything, right?
Speaker 2: Mortgages, savings yields.
Speaker 1: Right now, the Fed’s target rate is sitting around 4.25 to 4.50 percent.
Speaker 2: So what does this all mean for jobs?
Speaker 1: That always feels like the most direct impact for most people.
Speaker 2: The unemployment rate looks low on paper, 4.1 percent.
Speaker 1: Is that the whole story?
Speaker 2: Well, it’s low headline number, yes, which is good.
Speaker 1: But when you dig a little deeper, this edition points out some, let’s call them cracks.
Speaker 2: We’re seeing hiring momentum slow down.
Speaker 1: and definitely noticing more layoffs in certain sectors.
Speaker 2: Tech, finance, some of those areas that grew really fast.
Speaker 1: Okay, so maybe not quite as rosy as just the unemployment number suggests for every one individual.
Speaker 2: Potentially, yeah.
Speaker 1: It means some people might be feeling a bit less secure, even with overall low unemployment.
Speaker 2: It connects back to the Fed’s challenge.
Speaker 1: You know, they’re walking this tightrope, trying to control that stubborn inflation without tipping us into a recession.
Speaker 2: But if inflation just doesn’t cooperate, they might have to keep rates high.
Speaker 1: And those high rates put more pressure on borrowing, spending, growth, everything that builds your wealth.
Speaker 2: Which brings us to that word again, stagflation.
Speaker 1: This edition mentions that the risk seems to be rising again for 2025.
Speaker 2: Explain that one a bit more.
Speaker 1: It sounds unpleasant.
Speaker 2: It is an unpleasant mix.
Speaker 1: Yeah.
Speaker 2: Think high inflation.
Speaker 1: So prices are still rising uncomfortably fast, but the economy isn’t really growing.
Speaker 2: It’s stagnant.
Speaker 1: And unemployment starts to tick up too.
Speaker 2: It’s that combination that makes it so tough.
Speaker 1: We saw it famously back in the 1970s.
Speaker 2: Right, the 70s.
Speaker 1: Are we really looking at that again?
Speaker 2: Well, the conditions today are different in key ways.
Speaker 1: We still have positive GDP growth, remember, and unemployment is still low, historically speaking.
Speaker 2: But the risk is there.
Speaker 1: If inflation stays persistent and growth slows down more significantly, maybe because of, say, global issues or something unexpected, then yeah, you could definitely see stagflationary pressures build.
Speaker 2: The Fed’s own models are showing that increased risk for next year.
Speaker 1: OK, so not the base case maybe, but a real possibility we need to be aware of.
Speaker 2: Exactly.
Speaker 1: And this edition actually points to some forecasts like from Wells Fargo.
Speaker 2: They see the soft landing as most likely around 44 % chance, but they put recession at 26 % and stagflation at 27%.
Speaker 1: So basically it’s still pretty wide open, almost a toss up between the less desirable outcomes.
Speaker 2: Pretty much.
Speaker 1: It really underscores why things like diversification and just general preparedness are so important for your net worth right now.
Speaker 2: You can’t bet on just one scenario playing out.
Speaker 1: You need a plan that works, well, hopefully works reasonably well, whatever happens.
Speaker 2: OK, that makes sense.
Speaker 1: So given all this uncertainty, recession, stagflation, soft landing, who knows we need a smart approach, a financial game plan, especially for millennials, HENRYs high earners not rich yet.
Speaker 2: You might be making good money, but maybe still feel like you’re building towards those bigger goals.
Speaker 1: This uncertainty adds pressure.
Speaker 2: So this edition lays out a kind of playbook, right, for cautious preparation.
Speaker 1: That’s right, a playbook.
Speaker 2: And step one, the absolute foundation is strengthening your cash buffer.
Speaker 1: Liquidity, cash is king, especially when things feel uncertain.
Speaker 2: The recommendation is aiming for, say, six to 12 months of your essential living expenses.
Speaker 1: Not your total spending, but the must haves.
Speaker 2: Six to 12 months, OK.
Speaker 1: And where should you keep that?
Speaker 2: Just a regular savings account.
Speaker 1: Ideally, somewhere it’s safe, but also earning something.
Speaker 2: High-yield savings accounts or money market accounts are great for this right now.
Speaker 1: You can find rates around 4%, maybe even 5 % APY.
Speaker 2: That’s annual percentage yield.
Speaker 1: So your emergency cash is actually working for you a bit.
Speaker 2: And why is this buffer so critical beyond just emergencies?
Speaker 1: It gives you flexibility, financial power, really.
Speaker 2: It means if the market dips, you don’t have to panic and sell investments at the worst possible time just to cover bills.
Speaker 1: It also provides stability if…
Speaker 2: you know, your job situation becomes less certain.
Speaker 1: And maybe even lets you seize opportunities if assets become cheap.
Speaker 2: Right, playing offense a bit, not just defense.
Speaker 1: OK, buffer established.
Speaker 2: What’s next in the playbook?
Speaker 1: Debt.
Speaker 2: Exactly.
Speaker 1: Aggressively paying down high interest debt with rates up, carrying debt, especially expensive debt, is like, well, it’s like trying to swim with weights on.
Speaker 2: It just constantly drags down your net worth potential.
Speaker 1: So prioritize the really nasty stuff first, like credit cards.
Speaker 2: Absolutely.
Speaker 1: Credit cards often have APR’s annual percentage rates way up there.
Speaker 2: 15 percent, 20 percent, even higher sometimes.
Speaker 1: That’s priority number one.
Speaker 2: Also tackle things like personal loans.
Speaker 1: If the rate is high, maybe above, say, 7 percent or so.
Speaker 2: Getting rid of that expensive debt frees up so much cash flow.
Speaker 1: It’s like giving yourself an instant raise almost.
Speaker 2: Freeze up money that was just going to interest payments.
Speaker 1: Precisely.
Speaker 2: You plug that leak and suddenly you have more money to save, invest or just handle rising living costs without stress.
Speaker 1: It’s about reclaiming control.
Speaker 2: OK, buffer, check.
Speaker 1: High interest debt tackled, check.
Speaker 2: What about investing?
Speaker 1: It feels scary to invest when the economy is wobbly.
Speaker 2: It can feel scary, yeah.
Speaker 1: But the key message in this edition is stay invested.
Speaker 2: Don’t panic and pull everything out.
Speaker 1: Market timing is notoriously difficult, maybe impossible.
Speaker 2: Instead, the focus should be on strategic adjustments.
Speaker 1: Rebalancing is key.
Speaker 2: Rebalancing.
Speaker 1: Remind us what that means practically.
Speaker 2: Sure.
Speaker 1: It just means bringing your portfolio back to your target mix of assets.
Speaker 2: Say you wanted 60 % stocks and 40 % bonds.
Speaker 1: If stocks have done really well, maybe now you’re at 70 % stocks.
Speaker 2: Rebalancing means selling some of those stocks, locking in some gains, and buying more bonds to get back to your 60-40 target.
Speaker 1: It forces you to sell high and buy low systematically.
Speaker 2: Makes sense.
Speaker 1: And this addition also mentions some newer investment options, like fractional ownership.
Speaker 2: Yeah, this is pretty interesting.
Speaker 1: Platforms are emerging that let you buy smaller pieces or fractions of assets that used to require huge amounts of capital.
Speaker 2: Think private real estate funds, fine art portfolios, even venture capital.
Speaker 1: You might be able to invest, say, a few thousand dollars instead of needing millions.
Speaker 2: It opens up possibilities for diversification beyond the usual stocks and bonds, which could be really valuable in uncertain times.
Speaker 1: Diversification beyond the public markets.
Speaker 2: Interesting.
Speaker 1: And with inflation still being know, sticky, are there specific investments to consider for that?
Speaker 2: Definitely.
Speaker 1: Protecting your purchasing power is crucial when inflation is elevated.
Speaker 2: Holding too much cash long term means it loses value.
Speaker 1: So the playbook highlights inflation protected investments, things like TPS, treasury, inflation protected securities.
Speaker 2: Their value actually adjusts upwards with inflation.
Speaker 1: Oh, interesting.
Speaker 2: The principle itself adjusts.
Speaker 1: Yeah, the principle adjusts.
Speaker 2: Then there are Series I savings bonds or I bonds.
Speaker 1: You buy them direct from the government, TreasuryDirect.gov.
Speaker 2: There’s an annual limit, $10,000 per person.
Speaker 1: And of course, real assets.
Speaker 2: Things like actual real estate or commodities like gold have historically been decent hedges against inflation too.
Speaker 1: So options to specifically counter that inflation drag.
Speaker 2: Good to know.
Speaker 1: What about the spending side, lifestyle inflation?
Speaker 2: Ah, yes, the silent wealth killer.
Speaker 1: It’s so easy, right?
Speaker 2: You get a raise, you start spending a bit more here, a bit more there.
Speaker 1: This edition really advises managing that carefully.
Speaker 2: Do a regular spending audit.
Speaker 1: Look at where your money is actually going.
Speaker 2: Identify those discretionary things, the wants, not the needs that you could potentially trim back.
Speaker 1: And then channel that saved money.
Speaker 2: Back towards those goals.
Speaker 1: Paying down debt faster, boosting your investments.
Speaker 2: It’s about being intentional.
Speaker 1: Discipline budgeting isn’t about deprivation.
Speaker 2: It’s about making sure your money aligns with your priorities, especially when living costs are generally rising.
Speaker 1: Right, making conscious choices.
Speaker 2: OK, final piece of the playbook in this edition.
Speaker 1: career and income.
Speaker 2: Yeah, super important.
Speaker 1: Boosting your career stability and, if possible, diversifying your income streams.
Speaker 2: When the economy feels uncertain, job security can feel less certain too.
Speaker 1: So consider things like upskilling, maybe learning new skills in industries that tend to hold up well even in downturns.
Speaker 2: Like healthcare or cybersecurity.
Speaker 1: Exactly.
Speaker 2: Those are great examples.
Speaker 1: Industries with fairly constant demand.
Speaker 2: And beyond your main job, think about side hustles or passive income.
Speaker 1: Could you do some freelance consulting?
Speaker 2: Do you have skills you could monetize online?
Speaker 1: Maybe rental income, if that’s feasible for you.
Speaker 2: So don’t put all your income eggs in one basket, essentially.
Speaker 1: That’s the idea.
Speaker 2: Having multiple income streams provides a cushion.
Speaker 1: If one source slows down or, worst case, disappears, you’re not completely derailed.
Speaker 2: It protects your overall income, which is the engine of your net worth growth.
Speaker 1: OK, so wrapping this up, this edition makes it really clear that whether we end up in a recession or stagflation, or we get that soft landing.
Speaker 2: The core financial principles are kind of the same, aren’t they?
Speaker 1: They really are.
Speaker 2: And it’s not just our analysis saying this.
Speaker 1: You see similar themes echoed by other sources, like the Motley Fool, even in Fed research and forecasts from banks like Wells Fargo.
Speaker 2: It boils down to some timeless truths.
Speaker 1: And you highlighted two main pillars.
Speaker 2: Two core pillars, yeah.
Speaker 1: First, liquidity is power.
Speaker 2: Having that readily accessible cash, that buffer we talked about, is just fundamental.
Speaker 1: It protects you from shocks.
Speaker 2: stops you from being a forced seller in bad markets, and crucially, lets you potentially benefit from volatility by snapping up opportunities.
Speaker 1: Cash gives you options.
Speaker 2: And the second pillar.
Speaker 1: Debt is a drag, especially high interest debt.
Speaker 2: It just constantly works against you, eroding your net worth, making it harder to get ahead.
Speaker 1: Particularly when inflation and interest rates are higher, that drag becomes even heavier.
Speaker 2: Getting it under control is liberating.
Speaker 1: So strengthen the buffer, reduce the drag.
Speaker 2: Sounds simple, but obviously requires discipline.
Speaker 1: It does.
Speaker 2: But by focusing on strengthening these pillars now, you’re not just protecting what you have.
Speaker 1: You’re building resilience.
Speaker 2: You’re building adaptability.
Speaker 1: That allows you to navigate whatever economic weather comes your way and potentially even thrive through it.
Speaker 2: Thrive, not just survive, like that.
Speaker 1: Exactly.
Speaker 2: And maybe that leads to a final thought, question for you listening.
Speaker 1: We’ve talked a lot about protecting your net worth, building resilience through these foundational pillars.
Speaker 2: But how might proactively managing this economic uncertainty, understanding the risks, preparing with this playbook, actually open doors to accelerating your wealth growth, not just preserving it?
Speaker 1: Where are the opportunities hidden within the uncertainty?
Speaker 2: um something to think about.
Speaker 1: Turning challenge into opportunity.
Speaker 2: Remember to subscribe to Noyack Wealth Weekly on our website, wearenoyack.com, to read the article behind today’s conversation and to get our weekly newsletter straight in your inbox.
