Hegna's Hotseat

2021 Economic Commentary


e are almost two months into 2021 and the United States’ economy is in a bit of a strange place. I’ve heard other financial experts say that this is the biggest disconnect they’ve seen between the market and the actual economy. After the mess of 2020, it doesn’t seem possible that the market could be hitting the record highs that it is hitting right now. But that’s exactly what’s happening!

One reason we are seeing this is that TINA (There Is No Alternative) is back again. The market is going up mainly because, well, where else can an average investor put their money? But trees don’t grow straight to the sky and markets don’t go straight up. A retirement portfolio that is entirely dependent on the market is likely to fail eventually, so protection products such as life insurance and annuities HAVE to be added in.

Many people are concerned that the US is headed for some serious inflation. My stance is actually that inflation shouldn’t be a huge concern right now. The 30-year U.S. government bond has an interest rate under 2% right now. I wouldn’t be worried about inflation until that interest rate is over 3%. The bond market is the smartest market in the world, so I would keep an eye on that market to tell you where inflation rates are heading.

We are still seeing a lot of deflation right now, and that is mainly due to government debt around the world. There is currently 18 trillion dollars’ worth of government bonds around the world that are paying NEGATIVE interest rates. Hardly an indicator of inflation. The COVID-19 relief bills gave lots of stimulus money to Americans. While some of that stimulus money was surely necessary, it does mean an increase in the national debt. Remember, going into debt is stealing from the future to pay for things today. Right now, the national debt sits at just under $28 trillion (https://www.usdebtclock.org/). That’s a whole lot of money stolen from the future.

I used to be a big non-believer in cryptocurrency. However, after watching a guy on CNBC lay out a credible case for it to go to $500,000 or even $1,000,000, I put 1% of my portfolio into Bitcoin, and I’m very glad I did! This is an investment of choice for millennials and now billionaires, major hedge funds, TESLA and even AAA-rated Mass Mutual have all taken significant positions in Bitcoin. Nowadays, I continue to recommend putting 1% of a portfolio into cryptocurrency. If it goes to zero, 1% would not cause a huge amount of pain. But if it does continue to soar, that 1% position could be significant in the future. I actually think a 1% position is more prudent and less risky in the long term than a 0% position.

The biggest takeaway from the current state of the economy is that every retiree needs guarantees in their investments. 2020 proved to the world that things can change in an instant, so putting protections on your investments is more important than ever. Having that guaranteed income will shield you from market downturns and will keep you afloat no matter the state of the country. Most importantly, putting those protections in place will help you retire with confidence and enjoy your retirement the way YOU want to enjoy it!

For more commentary throughout the year, keep up with my newsletter and follow me on social media!

See you on my next blog post,

-Tom Hegna

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