The impact of global economic trends on personal wealth

We’re more connected than ever, and global economic trends can greatly impact your personal wealth. Factors like inflation, interest rates, technology, geopolitics, and climate change can all affect your investments. Staying informed about these trends can help you make smart financial decisions and achieve your wealth planning goals.

Let’s explore some key global economic trends that can present both risks and opportunities for your financial life.

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Inflation and interest rates

Two financial concepts that could directly impact personal wealth are inflation and interest rates. These concepts happen at the macroeconomic level, causing ripple effects at the microeconomic level, which can impact your investments and overall wealth.

Inflation

Inflation is the rate at which prices of products and services increase over time. As the cost of goods goes up, your purchasing power goes down. Since inflation causes the value of cash to diminish, there may be better vehicles than cash to help protect your wealth for the future.

Investments that can grow faster than inflation, like stocks or real estate, are usually a stronger alternative to cash. And with the right investment advisory program, you can access professional guidance to help position your portfolio to survive, or even benefit from, rising rates of inflation. Just keep in mind that all investing carries a level of risk.

Interest rates

Central banks, like the Federal Reserve in the U.S., issue guidance for interest rates, which individual banks then consider when setting their rates for saving and borrowing money. Interest rates determine the amount you’ll earn in a savings account and how much you’ll pay for the money you borrow for a loan.

When interest rates are high, consumers are less likely to borrow money because it’s more expensive. When interest rates are low, people are more likely to borrow because it’s more affordable, which can stimulate the economy. In both cases, interest rate changes can impact personal wealth since they can materially shape your financial decisions around saving and investing.

Technology and industry

Technology is advancing more rapidly than ever, disrupting industries and creating new ones. Emerging technologies can affect labor demand, investment opportunities and asset valuation.

For example, the advancement of Artificial Intelligence (AI) and Machine Learning (ML) has reduced the demand for human workers in multiple industries, increased the value of developing these advanced technologies, and created lucrative investment opportunities for companies making high-quality software and programs that use them.

Innovations like AI have created brand-new markets, increased productivity, and transformed various industries on a global scale. This can have implications for your personal financial portfolio, whether you’re moving into investments that focus on these areas or pulling away from industries that are experiencing a downturn because of them.

Geopolitics

Countries changing their foreign policies can also impact your wealth, especially when it comes to two key factors:

Trade policies

Tariffs, trade wars and sanctions can impact the global cost of goods and overall economic stability.

Tariffs, which are taxes imposed on imported goods, can increase the cost of foreign materials or products. And the resulting price increases can cause inflation in the receiving country. If this causes the triggering of reciprocal tariffs, it could lead to a trade war. This could reduce exports, harming specific industries in both countries. These economic stresses could also strain international relations.

Likewise, when nations apply sanctions, especially when applied by multiple countries in unison, the results can be crippling to the sanctioned economy. And sanctions may also impact the countries that imposed them if they buy goods from that sanctioned country. Prices may increase as those goods have to be made elsewhere, potentially at a higher cost.

To preserve personal wealth in a volatile global market, consider diversifying your investments across multiple sectors and geographic locations and seeking the help of a financial professional.

Currency fluctuation

If you invest in international markets, the value of different currencies can also affect your portfolio. To make stronger financial decisions, monitor currency exchange rates, learn more about hedging strategies or connect with your financial advisor for guidance.

Climate change

Climate change has multiple impacts on global economics and, as a result, on personal wealth. One example is that there are potential risks associated with physical assets, like real estate or infrastructure, because of global climate change. The value of your investments can change depending on the severity of climate change in the geographic region.

Properties in flood-prone areas, or those in areas increasingly susceptible to natural disasters, may not hold their value or deliver returns as initially forecasted. If you have a real-estate portfolio that is heavily weighted in these areas, you could get limited or reduced returns and may find it advisable to divest from certain assets so as not to risk losing money.

Another impact includes future opportunities that are created. Business ventures in sustainability encourage investors to make wealth management investments that promote renewable resources. Investors may look for opportunities to support environmental principles and can feel good about making a positive impact while doing so.

The bottom line

Global economics can profoundly impact personal wealth, sometimes in ways you might not anticipate. Staying informed about global markets and trends is essential for protecting your portfolio and making informed decisions. Connecting with a financial advisor can help guide you through this complex, changing world to help you achieve your long-term financial goals.

Sources:

federalreserve.gov/faqs/why-do-interest-rates-matter.htm

trade.gov/import-tariffs-fees-overview-and-resources

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