Uncertain times require a close eye on your finances – Daily Tribune
Just before the Super Bowl, our own Ford Motor Company announced that it was cutting production due to a shortage of semiconductor chips. At the Palace’s former location on Lapeer Rd., the parking lot still has many GM trucks probably waiting for those chips.
Today, as the Chinese-hosted Olympics draw to a close and athletes return to their home countries, trouble spots are popping up all over the world. We can only hope they don’t escalate into something much more serious. Tensions between Taiwan and China, both our trading partners, continue to rise.
Corporate giant Intel plans to build a chip manufacturing facility in Columbus, Ohio, but production is still a few years away. Taiwan is currently the world’s largest producer of semiconductor chips.
A global economy is great when it works. But when there are issues affecting manufacturing and supply channels, the impact is felt everywhere.
Russia and Ukraine are also on the brink of a conflict that would almost certainly have a negative impact on world financial markets. Our leaders have already warned Russia that if they decide to invade, there will be serious financial repercussions.
As the world shrinks, most international events are felt around the world. I don’t want to downplay the dangers of military conflicts, but even in times of war you have to keep an eye on your finances.
I’ve always advised people to expect the unexpected when it comes to household finances. And this year there have already been some unexpected events. The good news is that wages are rising and unemployment is nearing historic lows. Unfortunately, the cost of everyday items is increasing faster than paychecks. And good luck finding these items.
There is not much we can do about global conflicts, supply chain problems, price spikes and empty shelves. But there’s a fairly simple math equation that can help you prepare for a potential global financial reset.
It’s called The Rule of 72. Here’s an example. If you have $100 and make 8%, it will double in nine years. (8×9=72). It also doubles in six years if you earn 12%. (6×12=72) Any combination of 72 works.
The rule also applies to inflation. It’s been relatively low for years, but we’re currently on track for a 7% annualized rate. If this rate continues, prices will double in 10.28 years. (7×10.28=72)
In other words, 10 years from now, your dollars will have purchasing power of 50 cents.
We all know that car prices have increased significantly, mainly due to the rising cost of computer chips. But it’s not just chips. Commodity prices have risen across the board, including wheat, coffee, corn, copper, timber and oil.
Rather than complain, I suggest that we should all expect and prepare for higher prices in the future. For some, this may mean nothing more than reducing visits to the café or eating out less. For others, it could mean missing out on a vacation, or even worse.
It will almost certainly cost more to maintain your lifestyle and it will be harder to save and invest. The Rule of 72 will not solve any financial problems, but I believe applying it could help you prepare for a rising price environment.
Securities offered by LPL Financial, member FINRA/SIPC. Email your questions to [email protected] Ken is a registered agent of LPL Financial. Ken is Vice President of the Society for Lifetime Planning. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk, including loss of capital. No strategy ensures success or protects against loss.
The Rule of 72 is a mathematical concept and does not guarantee investment results nor is it used as an indicator of how an investment will perform. It is an approximation of the impact of a target rate of return. Investments are subject to variable returns and there is no guarantee that an investment will double in value.