A Letter from GFG
Dear clients, friends, family, and colleagues,
To say there is uncertainty in the economy would be an understatement. Consumer confidence is dropping as gasoline prices exceed $5 per gallon, grocery bills are going up, and rents are rising.
Signs of cooling are emerging in the overall economy and in the U.S. housing market, but slowing growth and Federal Reserve interest rate hikes year-to-date still have not been enough to tame price pressures, leaving the consumer with many questions. How far will the Fed have to go? Can the U.S. economy avoid a recession over the next 12-18 months? How will this affect me or my business?
While we can’t say for certain what will happen in the near future, all signs are pointing toward a recession in the next year. What’s important to understand is that the average recession lasts about 18 months and there have been about 20 recessions since the beginning of America. So, don’t make it worse than it is, but don’t make it better either. In the words of Winston Churchill, “The farther backward you can look, the farther forward you can see.”
As a business owner and entrepreneur, now is a great time to be preparing, anticipating, and gathering supplies for the winter.
First, this winter may be a little longer than the average so let’s prepare mentally for a 3-5 year recovery. Let’s get ahead of it and not be caught sitting on our hands when opportunity presents itself. Let’s investigate and take uncomfortable action toward investing in our businesses.
Building cash reserves is a critical component to being able to purchase assets when they’re on sale, to acquiring talent at a discount or to expand your business into areas where your competitors are having to shut down.
Like the great Wayne Gretsky once said about his success, he didn’t “skate to where the puck is, skate to where it’s going.” Some of the most successful businesses have been started in a recession – Uber, Airbnb, Mailchimp, and Netflix just to name a few. Now is not the time to be fearful, panic, or make rash decisions based on emotion. Rather, now is the time to be proactive, look for trends, and be prepared for growth opportunities.
To our clients who are not business owners, the advice isn’t all too dissimilar. While a static paycheck or fixed income may not allow for a ton of flexibility, there are a few key points to keep in mind.
First, reserving cash should be a priority. Evaluate your monthly spend rate and determine where you may be able to cut costs to allow for more savings. Second, and most importantly, be prepared for opportunities to deploy cash into the market as a cold market allows you the ability to buy assets on sale and when it warms up, which it will, the multiple you will realize on those dollars will grow your savings and net worth exponentially.
As mentioned above, now is not the time to panic, sell or make rash decisions based on emotion. We’re here to talk to you if you have questions about your current allocation and how you’re emotionally handling the volatility.
In conclusion, as we’ve learned in the past with the “transitory” inflation rhetoric, the consensus view is often incorrect and should be met with skepticism.
When you see the crowd going one way, don’t fall prey to the collective group think… rather, look in the other direction.
You’ll often find the window of opportunity, the warmth in the winter.