How to Make or Break Your Financial Goals

financial goals for the future

Opening my inbox yesterday, the headline that greeted me was:

‘Stocks sink to the worst monthly decline since 2016’

My thought bubble was one of feigned surprise… Shock horror…markets actually fall.

I continued scrolling down and I came across an article from Geopolitical Futures titled ‘The Middle of an Era’.

Given that my days are consumed with writing a book on impermanence and that nothing stays the same forever, the title drew me in. What era are we in the middle of, I thought?

The article looked at the changing geopolitical landscape every two decades from 1900.

Here’s an extract up to 1960:

In 1900, Europe was peaceful and prosperous, and it dominated the world. It was assumed that this was a permanent reality. By 1920, Europe had torn itself apart, impoverished itself, in a bloody war. It was assumed that Germany, having been defeated, was finished. By 1940, Germany had re-emerged and was astride Europe.

It was assumed that the German tide could not be resisted. By 1960, Germany was an occupied and divided country. It was assumed that war between the strongest of the occupiers, the United States and the Soviet Union, was inevitable.

It’s human nature to assume the current situation will continue into the future. It’s called extrapolation. But it rarely does.

Power. Influence. Demographics. Financial dynamics. They all change.

When we are in the midst of these shifting undercurrents, we rarely notice what’s happening.

It’s only with 20/20 hindsight that we see how the fall of the Berlin Wall, or 9/11, or the subprime crash altered our world…for better or worse.

Why choose 20-year blocks of time?

Twenty years is an arbitrary time period, but historically it’s about the length of a human generation. The world changes radically in each generation, but the dates can vary.

Each generation — from the Depression-era to Gen Z — brings a different perspective to the world. And it’s that perception that drives economic activity.

Frugal Depression-era. Credit-loving boomers. HECS-HELP-indebted millennials.

And the sentence that packed the most impact was (emphasis mine):

Twenty years means nothing in history, but it means everything in our lives, so our tendency to convince ourselves of the permanence of the present era is understandable.

20 years can make or break your financial goals.

Ride a long-term bull market and you can accelerate your wealth…provided you sell before the bear market arrives.

Invest at the top of a bull market — believing the trend will continue indefinitely — and it can take decades to make your dollar whole again.

The Geopolitical Futures article sent me in search of The Gowdie Letter update I wrote in May 2017…and also forms part of the rationale in my new book.

Here’s an edited extract from that update…

The legacy of the 20th century is — too much debt; too many government promises; too little future growth.

Where to from here?

In January 2017, the Smithsonian Magazine published an article titled:

“When Robots Take All of Our Jobs, Remember the Luddites —

What a 19th-century rebellion against automation can teach us about the coming war in the job market”

The article begins with:

“Is a robot coming for your job?

“The odds are high, according to recent economic analyses. Indeed, fully 47 percent of all U.S. jobs will be automated ‘in a decade or two,’ as the tech-employment scholars Carl Frey and Michael Osborne have predicted. That’s because artificial intelligence and robotics are becoming so good that nearly any routine task could soon be automated. Robots and AI are already whisking products around Amazon’s huge shipping centers, diagnosing lung cancer more accurately than humans and writing sports stories for newspapers.”

Let’s err on the side of caution and reduce the expected carnage in the US job market from 47 percent to 30 percent…that’s still a big number.

Apply that percentage to developed and developing world workforces and “Houston we have a problem”.

Without employment how do you go into debt? If less people take on less debt (because they’re not sure if their job is next to be cannibalised), how does the debt funded economic growth model propel itself?

With less people in the 21st century workforce, who’s paying taxes to finance 20th century entitlements?

The good news is history shows us that new jobs will replace the old ones.

The bad news is that’s going to take a generation or two to occur.

We are more concerned with here and now. And that’s looking to be a whole lot different to the world of recent times. 

On 3 May 2017, the Financial Times published an article written by David Eiswert — portfolio manager of global equities at T Rowe Price.

The article was titled:

“The era of ‘deflationary progress’ means betting on automation’ — Investors need to come to reconcile themselves to the contradiction of progress and slower growth”

The concluding paragraph summarised the author’s outlook:

“…there is more than politics and policy, demographics and debt slowing dollar GDP growth. There is a difference between stagnating statistics and the change and progress happening in the world. Automation is leading to a condition of ‘deflationary progress’. Investors and voters will have to come to terms with the contradiction of progress and lower growth.”

It looks and feels like we are on the cusp of a major change in the dynamics driving economic growth.

Red tape; green tape; ageing Boomers; and, historical debt levels are all contributing to being the governor on GDP growth.

But “wait there’s more” according to Eiswert.

Throw in automation for good measure and economic progress is going to resemble that of a snail on Stilnox.

Back to our golden rule [economic growth can only be achieved two ways — increased workforce and/or increased productivity].

Increased workforce — unlikely.

In fact, the un- and under-employment in the millennial demographic is estimated to be in the 10 percent to 20 percent range.

And for those fortunate enough to be employed, the news on the wage front is not as good as they would like.

In his book Average Is Over, Tyler Cowen wrote:

“Inflation-adjusted wages for young high school graduates were 11 percent higher in 2000 than they were more than a decade later, and inflation-adjusted wages of young college graduates (four years only) have fallen by more than 5 percent.”

Increased productivity — possibly.

However, any gains are likely to be “deflationary progress”.

For example, Amazon is driving efficiencies but at a cost to employment and at the expense of less efficient competitors.

In a low growth world, growth becomes almost a zero sum game. One company’s gain is another’s loss.

Without growth in the workforce and/or productivity, economic growth is going to be elusive.

On a day to day basis the world goes on about its business. Very little appears to change.

Same stuff, different day.

However, as I hope I’ve managed to demonstrate to you, under the surface there are strong currents of change.

Speaking as a baby boomer, when I was a young fellow, we fully expected to earn more than our parents. We had been conditioned to expect the next generation would live better than the one before. Not so today.

Ask a group of Gen Y and Millennials if they have the same expectation and my guess is the majority will answer in the negative. HECS debts, stagnating incomes, higher cost of living (rent), these are all growth retardants we Boomers never had.

The base is simply not there to repeat past levels of growth.

To maintain the illusion of growth we are seeing ballooning levels of public debt.

A fair percentage of this is being incurred for recurring expenditure…health and welfare spending.

Much has been said about borrowing for infrastructure spending. My guess is this will not be as economically productive as it is trumpeted to be.

Anything Government and unions are involved in planning, inherently costs far more and delivers far less.

In summary, the components for growth are not there. The immediate outlook for the 21st century is it will be an equal and opposite force to what we witnessed in the final decades of the 20th century.

My advice for those who are planning on the recent past — fake market values and fake economic growth — continuing into the future, you may want to rethink your plans.

History does not support the assumption that tomorrow (next decade or two) is going to be the same as today.

The 20th Century has left us with a legacy of debt, entitlements and expectations that cannot be funded.

With hindsight, people will see that the bursting of the current asset bubble was a pivotal point in history…fortunes will be lost and made.

Those who make the fortune are the ones who act with foresight.


Vern Gowdie,
Editor, The Gowdie Letter

Vern Gowdie

Vern Gowdie

Editor at Markets & Money

Vern Gowdie has been involved in financial planning in Australia since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

His previous firm, Gowdie Financial Planning, was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

He is a feature editor to Markets and Money and is Founder and Chairman of the Gowdie Family Wealth and the Gowdie Letter advisory services.

Vern Gowdie

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