“The dollar index fell 33 per cent in real terms both in the 1970s and the mid-1980s, and another 28 per cent from 2002 to 2011. During those three periods, the net domestic saving rate averaged 4.9 per cent (versus -1.2 per cent today) and the current account deficit was -2.5 per cent of gross domestic product (versus -3.5 per cent today). With the US having squandered its exorbitant privilege, the dollar is now far more vulnerable to a sharp correction. A crash is looming.” This comes from an article in the FT The end of the dollar’s exorbitant privilege A crash is likely given the collapse in US domestic saving and a gaping current account deficit
Its an opinion. You can agree with it. You can disagree with it. You can ignore it. But what if the writer has a point?
When you allocate your capital for your future, you look for as much certainty as possible. I don’t mean certain returns, but a certainty of understanding. However, we are being tested in so many ways. Businesses are changing exceptionally fast. Countries are blind not knowing what do about global economies. As such, we may see things we didn’t expect. Your question; if there was a crash looming, would you change your investment decisions today or not? Who do you bounce your thoughts off? It’s no good talking to your wealth manager about selling out of equities or bonds or both, if that’s what you believed the right thing to do, as they would tell you not to…why? It’s not in their interest to lose managing your money!
Here’s a question. If there was a crash and your portfolio falls by 30%, how much have you lost compared to your wealth managers? Well, you’ve lost 30%. Ouch. They still manage 70%. They have a marginal drop in income, you have a capital loss. If they told you to sell all your investments and move into cash, they lose 100% of their income, and you have 100% of your capital. In other words, there is an incentive by your wealth manager for you to remain with your wealth manager.
It’s why it’s important to ask great questions about your money managers…and if you don’t really know what to ask, you’ll need a financial bodyguard. Want a conversation?