Market Outlook for 2022 – How Set Your Finances on the Right Track, Chat With Matthias Richter

Yasi: Hello, everyone. You’re listening to the first fast episode in 2022. And in this episode I invited Matthias Richter, who is a super experienced wealth manager, helping hundreds of millionaires to manage the investment. But he’s also the coach for fast-track money course that he’s helping every single individual students who join our course to understand how money works, and how to save, earn and invest and build a healthy financial future. So he is named Financial Imagineer in case you’re wondering who is Matthias Richter. And, uh, the reason why I invited him to the show, because I want to extract his brain to understand what happened in the market in 2021. And also what is the outlook for 2022 and how you as an individual investor can be better informed to approach investing.

So welcome to fast-track podcast, Matthias.

Matthias Richter: Thank you very much for the super great introduction. Uh, very happy doing year two, you as well happy 2020 to let’s see what this year has in the cards for us. So COVID has not been eliminated. This year yet. So although the market was not so depressing compared to 2020, as we remember, you know, you March everything deep, but there are still some major events that we should take note.

So your words, how would you describe the financial market in 2021? Okay, well, maybe Colby is the big topic here. Um, I also believe it will not be eliminated at all. Uh, it will just become, uh, uh, an endemic from the pandemic going into the endemic. So we will have to learn how to live with the virus, but maybe that brings me also to the.

The main topic on 2021. Uh, I believe in the early 20, 21, there was a lot of euphoria. People are very happy to know that there is a vaccine or something we can do, uh, against the virus other than lockdowns, and doing, doing all the silly things that maybe, uh, hold the economy back. Right. Uh, However later we figured it’s not good enough.

Maybe not enough. People got the vaccine or it’s still spread it, go here and there and then infect again, people. So it was a nervous market. If you probably ask me for one bird, it’s maybe nervous, but the second one still, it was a good year. It was actually a very good year. And the events probably. There were like two, three events.

Um, maybe not many people took note of those. Uh, one was maybe the turnaround of interest rates, uh, together with inflation, maybe the inflation, some of you start to feel at the moment in your pockets. Uh, If interest rates start to go up, your future purchasing power with cash is eroding, and that is also driving equity, valuations.

So especially growth stocks, stocks that probably did very, very well before they suddenly got discounted because the discounting cashflow method uses the forward interest rate. And if interest rates go up. The future earning value today will be lowered by a higher interest rate. So that was something in 2013, we called it like the taper tantrum when the fed was closing down the money gates and the, this year, actually the fear of that repeated.

It just within a few weeks that we were above that again. So it’s, it’s nervous market on off you, you could see like how travel stocks rebounded very quickly in the early year. And then later when summer came and things turned around, they went down again. So on, off nervous forward backward. And, uh, yeah, Colby is still here.

Like you said, let’s see what this year has in the cards. On that side. I believe the latest variant probably be. And now a little bit bold to say that I hope it’s like a early Christmas gift. It started before Christmas and maybe it’s milder than whatever happened before. And eventually it will reach, uh, the whole population.

So if that goes through, we should all build up natural immunity over time. And then maybe we can finally close the book of this pandemic IO. And you mentioned, um, the fat increase, the interest rate that had a direct impact on the it’s. The fed, the fed did not increase the interest rates yet. They simply changed the projection of when they believe they will do it.

So they, they talk about, uh, what they have to do. And the fed has a mandate of, uh, Countering inflation in a way and allowing for full employment. That’s the mandate of the fed and unemployment rates came down tremendously. If you look at the United States, it’s below 5%. Again, if all goes, according to the plan, the projections look at even lower than 4%.

There have been tremendous job creation again, after the big job destruction in March, 2020, which was also once in a century kind of an event. And now because, uh, we go back to more full employment. And at the same time, we still have, uh, like disruptions in the supply chain. Um, so you cannot get things as easy as you used to be able to get these from Asia, all the things the pricing went up, right?

So the shipping prices are up, um, raw material construction, all these things are more expensive. And now if you have full employment, people are also able to ask for higher wages. And that will drive up inflation even more. Because if, once you, once you have a temporary inflation, that’s one thing, temporary inflation, you can actually wait until it’s over.

And then if there’s a bottleneck or something, it will be over at one point in time. But if you, if you start to increase salaries and people get more. You cannot go back and say, now it was temporary. Sorry, we cut your salary back to normal. That will not happen. So some things are here to stay. And that’s the interesting point because we haven’t had probably salary raises in this kind of, uh, they mentioned for, for many, many years, which is the interest rates and inflation, you know, in the us.

Um, would it, would that have an implication on the, on the world economy or in the other countries? What, what’s the trends you’re seeing in Europe? Okay. Maybe the us dollar is still the world’s number one reserve currency. If the flood gates are closing from this unlimited money creation, it affects everyone on this planet.

That that’s number one, it will simply affect it because it has such a huge magnitude. If they print money and have open money for everyone at liquidity. Right. And this one is. Starting to close. And because of that, um, interest rates, especially the longer ones, they are increasing slowly but not too high yet.

And if you look at Europe, um, I believe here we will have, we will have a different problem because sooner or later, um, maybe the central bank, the ECB here in Europe might also want to do something on this side, but. Here we have another situation. We do have some countries inside the Eurozone that probably are still highly in-depth.

If you look at Saudi and Europe, so eventually the European side will not have the same, um, capability to raise interest rates anytime fast, without hurting some of their members. That’s a crummy. What do you mean by hurting the members? If they increase interest rate, how would that hurt the, some of the members in the current, some of the Southern European countries.

If you look at their in depth ness, they are barely able to pay or serve the interest rate. If the higher the interest rate, the more interest they have to. Correct. Yeah. And the harder it will get to refinance their debt. Remember 2011, it was after the financial crisis. Um, we had the Euro crisis. It was all about Greece and Cyprus.

And then some people start to say there is more Saudi in European countries with a similar system. So they built like an umbrella to protect the whole, uh, Euro construct. Here, I’m personally extremely curious to see what’s going to happen. Um, I believe the Euro is here to stay. I also believe they will not break up or do something, but they have to come up with some kind of solution before they go up with interest rates.

Otherwise, um, you could, you could basically draw like a line, a horizontal line from east to west and say everything south from here would have issues. If they go up with interests. And for some point we have listeners or audience from south in Europe, right? How can they protect themselves from any potential risks because the country, they are living a highly interrupted.

Well, one thing is if the counter is highly indebted, you probably feel it already with higher Texas people, usually in these countries have to pay a higher Texas. One other thing is. Um, they will go to look for where they can take the money from some places that you cannot move. So in some places there, I saw that, uh, property taxes suddenly are getting increased because you take from very, you can take and you cannot move your real estate abroad.

Your real estate. Based in one place and real estate is usually also one of the good things that helps you protect against inflation. So it’s a zero sum game, but if your house goes up in value, like 20, 30%. You cannot buy anything with that. If you live in that house, right? You, you could, you could just go back to the bank and borrow more if they, if they want to give it to you.

But if they don’t, you have an issue, right. And if the government starts to tax house owners more, this could create a higher problem. On the same side, though. It’s a good thing to have real assets in this world where, um, you can actually print unlimited money to, to, to flood the markets with. So it will be interesting.

Maybe gold will be something. Um, of course we talk about cryptocurrencies whereby that’s different dynamics there altogether, but they will be. Uh, run into some places where people feel more safe because all this COVID stepped two to go back to the beginning of this podcast, COVID raked up so much depth in the last few months, who’s going to pay the bill.

Yeah, this is going to pay the bill it’s at the moment, it looks like inflation will pay the bill, which is also something that can work out. So simply imagine you have 5% inflation each year. After five years, you actually erased 25% of your tips. How does it work? Can you explain? Sure. Okay. So let’s say you borrow a hundreds today and each year the hundred loses 5% in purchasing power.

So one year later, you’re at 95 and now I approximate a little bit. There is compounding and play and so on. But after two years, we’ll be 90. After three years, 85, after four years, it will be 80 after five years. Your tip is only worth 75% of the original amount in terms of current purchasing power. Of course, at the same time.

We assume, um, salaries go up real assets value go up, but actually this way, your nominal depth, the number of steps. It is still a hundred, but probably, um, the people around you now earn 125 or 130. You’re tapped in relation to the total GDP, the gross domestic product and the economic power of your country has actually shrunken without you actually paying back a single cent.

Uh huh. So that’s why I think it’s related to the other YouTube live we did. Is that why buying houses having mortgage can hatch you from inflation? Yes, yes, yes. Yes. Because then if, um, the value of your. Assets or anything it’s due to inflation. You lose value, but then actually your debt is also shrink.

In, in terms of purchasing power, but that’s the number looks the same, but you can think of it the same way. Like I think in the podcast there, I mentioned about the grandma bought the house for 50,000. If she borrowed 40,000 and never paid back a single cent. Now today, the houses may be worth a million.

Yeah. In, in relation to the house value today is just 4%. Yes. And I remember, you know, you know how the real estate market, how crazy it was in China. So people buy real estate 20 10, 20 years ago, and then their monthly mortgage payment is 1000 Chinese shrimp. And probably back then 1000 Chinese year would be like a large number.

And now there’s 1000 is nothing. And if people are. Paying back mortgage is due to inflation is nothing. Right. Um, yeah. So would you recommend. If possible having real estate as part of the total portfolio asset portfolio. Yes. Uh, I would highly recommend to have real estate, but please be careful. We are probably at the very high level at the moment.

So if now we talk about the flood gates are closing and interest rates go up. There’s a lot of speculation going on. And I’m not saying there will be a crush in 20, 22, but sooner or later, things will deflate again, the correction that there will be some corrections I’m quite sure in this year now 2022, there will be a point in time where we will see a five, 10, maybe even 20% correction in asset surprises in a way or another.

And if you are going now in with a level of. To your throat, you know, like as much as you can, it could be a very dangerous thing to do. But if you, if you say, okay, I do have the holding power. So that’s the differentiator. You don’t want to be in a situation where half a year from now, let’s say. Um, really interest rates suddenly go up to 4% or more and the banks come clean up their mortgage portfolio.

You don’t want to beat the first person. They have to call and say, sorry, Mr. X or Mrs. Y we need a little bit more cash to top up your mortgage. Otherwise we have to foreclose your property in the market tomorrow. You will be ending up very badly. This wouldn’t be the first time this has happened. Very sure.

It will not be the last time we always have the cycles of step expansion and then shrinking again, something like this. I don’t know in which form we will see it. I don’t have a crystal ball myself. I just want to say on one side, yes. Having real estate is helping you to protect against inflation, but on the other side, make sure you have the holding power and you can hold it maybe for five.

From that perspective. I still think it’s a good thing to do. Yeah. I want to highlight the holding power, this concept because in our money course, we talk about one of the mistakes people usually make when buying real estate is, you know, buying too many houses or buying too much houses. Depends how much house.

Too much, not that you have 1, 2, 3, 4, 5, but too much. So would you like to surely explain that? So that’s also related to the holding power? Yeah. I think that the concept here is if you are a first time home purchasing person, the home buyer. The usual ways you probably save up. I don’t know. Let’s say you save up a hundred thousand and then you run to the bank and say, Hey, I got a hundred thousand saved up.

How much mortgage can I get? And then you calculate with 80, 20, 80% leverage. And 20% is your equity. And the bank will say, oh, with a hundred thousand, you can get a 400,000 mortgage. You can buy a 500,000 property. The same thing. A million property, maybe you need to save up 200,000 and so forth and you would borrow 800,000.

The issue here is if you do that, you have zero wiggle room to the downside. Of course you have the upside, you have the maximum leverage, but if there is a market crash, the next day, You may have a big issue. We have seen cases like that in 2000 7, 8 9, where the, the real estate market in the U S crashed in Switzerland.

We have seen cases like that in the 1990s, where the big housing market crush was and the. Each country has similar stories to that. You mentioned China before. Um, this will be something very interesting. You I’m following evergreen there and, uh, all these other developers, they even had to kind of destroy finished buildings because.

They didn’t have the cash to, to finish them completely or sell them. It was really, really weird. So there could be some, some new kind of, uh, triggers into this market that we don’t see the full outcome yet. Maybe some audience. Okay. If the market is at its peak as a housing market, should I wait till it goes down, then I enter the market or what should I do?

Well, if you, if you have the comfortable situation to pay the rent, maybe you can wait a little. Um, or if you look at the cashflow terms, let’s say how much rent do you pay every month? At the other side of the story is of course interest rates are still super, super cheap. So at the moment, you could be still locking in a very, very low mortgage rate for a longer time.

If inflation really stays elevated, who knows maybe in one year from now, you can not get the same interest rates anymore. And then if you, if you wait until that happens, yes, maybe you will get the house a little bit cheaper, but you probably have to pay more every month for the next 20 years. So there is a fine line to say what to do exactly.

But look at your cashflow situation. If you pay rent, let’s say you pay rent a thousand bucks per month, or you could just get a mortgage for 500 bucks per month because the interest rates are so low. It’s, it’s an interesting thing. It doesn’t matter what the real estate underlying asset price will do for that, because he will free up 500 bucks of your monthly cashflow for like 20 years or more.

Um, On the other side, uh, what to do, if you look at what this may be not so elevated. Uh, I was looking at commodities again. Uh, gold didn’t really move up too much. Recently. Silver is actually lacking still. Um, that could be something very interesting to see. Uh, gold mining stocks are rather on the low end for my taste compared to what, what inflation is indicating.

The other thing though, is simply look at dollar cost averaging. If you want to buy into the market and invest, just start, you know, don’t, we don’t have a crystal ball. If you have, if you are a young, if you’re listening to this, you’re in your twenties or thirties, you have 20, 30 year of, uh, of remaining time before you eventually need this money.

Why don’t you just get started? 

Yasi: In a nutshell, I think, can I summarize like this for average? So the point number one that I think is very interesting for the audience is the holding power that, uh, by something within. Capability don’t buy to the maximum. And even if, yeah, even if interest rate changed, uh, you, you will still be okay. So buying too much houses will be, uh, as a trap.

And then the second interesting point is that if you are interested in, uh, buying a real estate, then considering how much you are paying for rent right now, versus how much you are paying for mortgage right now. Because I don’t know how is it in the U S by, in Switzerland, the interest rate is really, really low.

Similar like this in other countries because of the overall global economy 

Matthias Richter: in most countries, it’s very close to all time lows, but in, I think in a country like the U S you cannot get a short term interest rate mortgage like that. You have the overnight interest rates, like in here, it’s called the or it used to be live or cyber or things like that in Singapore.

It’s cyber. Um, Well, all of these things are different from country to country, but, um, you fix it in the us for like 15, 20, maybe even 30 years. And even with the current situation, I still think the interest rates are very attractive and low. 

Yasi: So in a way that if you buy a house or apartment within your own capability, you know, not to buy the maximum.

E unlocking the low interest rate, you will be able to benefit for like 10, 15 years, right? Even 10, 15 years later. And the interest rate will be much higher, but because you are buying it within the, you know, have a. Bigger cushion. So you will not force before us to sell your apartment. So I think that’s a very good point.

And the last point would be you talk about, you know, the question about buy and when to buy, right? If someone decided to buy real estate, when is it? They should wait for a few years or they should act now is to evaluate the cashflow. If they can free up cashflow and use them to invest, um, minus. By it.

And then you are already in the market rather than timing the market. Um, again, coming back to the first point that if you have the holding, waiting, so why not. 

Matthias Richter: Maybe if you, if you are not sure how much house we talk about, don’t buy too much house. I always like to say or buy a smaller house first.

Then you have, you are involved, right? You’ve got your foot in the door. If the market moves up on the small house. Good. You’re a part of it. You didn’t, you, you have these people, they say, I need to have the big mansion for 1 million or 2 million and they keep saving their cash. And then each year they see actually their goal run away because inflation is just taking care of.

They will never be there. Yeah. You can never actually get your foot in the door, but then they say, I am not going to buy because I still cannot afford it. And then 10 years later, Still didn’t buy. It’s like a vicious circle, but if you buy your small apartment and then you save some money, you pay off the mortgage here and your invest the rest, right.

It’s also, you don’t just put all your cash in your house. You should invest into stocks and other things, you build up a portfolio and eventually if, and when the market has some issues, It’s your time to act and upgrade, right? Then you will have the firepower, not just the holding power to do something there and to upgrade your house.

I liked that term firing power. okay, great. I think I have asked all the questions I can think about, you know, on behalf of our audience, if you have. Individual questions. Feel free to leave a comment in the episode page, write me a message. If you have questions to Matthias , write him a message. You can find out his contact information, our financial-imagineer.com.

And if you’re interested in learning more about how to manage your money, how to invest smartly and how to. Design your own portfolio that is going to help you building healthy financial future. We very welcome you to join the fast-track money course this year, we’re going to launch it full force and it’s already available on fast-track dot life slash money course.

Yasi: So we hope to see you there. And if I have any questions, feel free to write, feel free to write us. And, um, yeah. So any last words coming from your side? 

Matthias Richter: Well, um, we’d never know what the future is bringing to us. Right. But, uh, for an outlook 20, 22, I would say, um, maybe the good news will be the pandemic will slowly fade away.

Um, certain things will probably. Perform quite nicely. We still have some catching up, maybe in some travel names. Um, on the other side growth stocks, uh, there will be maybe a segmentation between the ones that were short-term COBIT profit tours. You had stocks like Peloton that the sword from below 22, above a hundred in a few weeks and our back almost to where it started before the pandemic now.

Uh, but you also have some stocks that maybe will be here to stay. Um, I’m looking at, I don’t want to mention too many names that don’t want to do single stock recommendations here, but it’s, it’s a very interesting world. There will be some new winners emerging from all that. And by having exposure to this dynamics, there will be usually humanity advances the most.

During crisis, we will be most innovative. If something big happens. It’s usually the bores that data before maybe this pandemic is similar. You see like what we could do with vaccinations and other things. I am still very, very optimistic about this. The 2020s and stay invested because if you, if you have a broadly diversified investment portfolio, you profit.

Yasi: If humanity is advancing, if we are improving, if we are moving forward, if you just sit on your cash, uh, inflation will wipe away your purchasing power. For sure. You will have a guaranteed loss on that side. But if you invest, yes, you will have the storms. You will have the uncertainty, but eventually the destination is a much more beautiful one than just holding on your cash.

That’s very well summarized. And I have to say maybe some of the sentences might sound very vague to some of you, if you have not started investing. Um, don’t worry about that. You know, there are lots of information on Matthias’ website, lots of information on my website. And also you’re welcome. If you want to sign up the course, learn everything at one go.

Uh, you would be able to understand. Yes. Stay invested. Stay invested, stay the course, but we always say that stay the course.

All right. Thank you so much for being here, Martinez and happy new year, everyone. I hope you have a very prosperous year and, start learning how to manage your money and start learning how to invest and stay invested. 

Matthias Richter: Thank you so much. Bye bye. Bye.