In the journey of life, we are constantly learning and growing. Each lesson we learn is a steppingstone toward a brighter future, with fewer mistakes and greater rewards, if we are attentive and apply those lessons. Last year, we gained a wealth of valuable insights; here are the three most significant.
The first one is about investment income – without pain, there’s no gain.
For years, investors have been disappointed by the low income generated by traditional interest-bearing investments. This trend led market experts to believe that the golden age of fixed-income investing was a thing of the past. However, inflation and the Federal Reserve’s approach to slowing inflation using increases have changed the landscape. In 2022, inflationary pressures led to a significant increase in the cost of living, as prices reached a 40-year high. In response, the Federal Reserve took action to maintain price stability and low unemployment. During 2022, they raised the Fed Funds rate seven times from .25% to 4.50%. In 2023, they increased rates four times from 4.50% to 5.50%. The short-term pain of inflationary pressure and the Fed’s interest rate increases rewarded investors with the higher income they’ve sought for years as government and corporate borrowers increased the coupons on their debt offerings.
Our second learning is about how music soothes the soul and the economy.
While a musician’s tour usually lines the pockets of a small number of individuals that includes headliners and promoters, that wasn’t the case when Taylor Swift and Beyonce hit the road in 2023. According to Pollstar, Time’s Person of the Year, Taylor Swift’s Eras Tour was the highest grossing tour in history, bringing in a whopping $1.04 billion in ticket sale revenue, but the big bucks didn’t stop there. The New York Times estimates that the tour’s North American stops will generate more than $5 billion when the concertgoers’ expenditures on hotel rooms, travel, clothing, food, concert-related parties, manicures, tattoos, and Swift-related activities are tallied up. According to Dan Fleetwood, President of QuestionPro, “if Taylor Swift were an economy, she’d be bigger than 50 countries”. Beyonce also toured last year with her Renaissance tour. With more than $575 million in ticket sales, Forbes estimates that by the end of the tour, Beyonce’ will have contributed $4.5 billion to the American economy.
Next time we anticipate an economic downturn, instead taking the age-old approach of flooding the system with money, igniting inflation, and then dealing with the harsh medicine of interest rate increases, let’s just “shake it off” and call out “all the single ladies”, and the partnered ones too.
Finally, 2023 has taught us that ‘It’s about my economy, not the government’s’. The economy recovered during 2023, and we’ve got the numbers to prove it:
- During the third quarter, the Gross Domestic Product (GDP) grew at an annual rate of 5.2 percent, indicating a strong expansion in economic activity.
- November’s unemployment rate dropped to 3.7 percent, reflecting a healthy labor market and increased job opportunities.
- The average inflation rate for 2023 was 4.2 percent, a far cry from the prior year’s 8 percent average. This indicates a more stable and controlled price environment.
- The year’s biggest shopping season which included, Black Friday, Cyber Monday and the December holidays, proved to be another record for online sales.
Yet, even with positive results like those, Americans grumbled for much of the year, complaining that the bad economy was making their lives worse.
Both the government and those in the financial services industry often assume that Americans form their assessment of the economy based on regularly released data. However, this is not the case. Instead, our perception of the economy is primarily influenced by our personal economic situation. The Financial Times and University of Michigan Ross School of Business proved that point when they reported that 74% of respondents to a recent poll said that rising food prices were having the greatest impact on their personal finances.
Every year brings its fair share of positive and negative news, unexpected events, and natural disasters. In this way, 2024 will be no exception to this pattern. Throughout history, individual investors have often needed help to make wise long-term decisions in the face of rapidly changing circumstances. To navigate the challenges and opportunities that they will face in the next 12 months and beyond, they’ll need your experience, expertise, and wisdom as a financial advisor.
Opinion article by Jan Blakeley Holman, Director of Advisor Education at Thornburg Investment Management
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