Looking back, the risks going into 2022 were inflation, recession and a bursting tech bubble. We all know how those turned out. Inflation has been realized; recession remains on the horizon, but might have been largely discounted at this point; and there has been no bursting bubble, just a steady leak. So although uncertainty remains, risk has largely been resolved, given that the markets have adjusted to expectations.

Looking forward, I want to take a different tack and focus on the risks that are material to individuals, and thus to financial advisors. Which is natural given that my company, Fabric, focuses on risk and portfolio design for that segment of the investment space. What I mean by material risk is that it’s something that matters to a person’s financial plan. Most people have financial plans that extend out by years, a time frame where recessions and market declines live somewhere between noise and bumps in the road.

My approach takes into account the fact that things don’t change very quickly, and that means the material risks for 2023 are the same as those in 2022—and the same as those in the future. Markets will veer off course, economic turmoil will rise in amplitude, but it will finally dissipate or reach a steady state. It is not a matter of whether economic and market trouble occurs, but rather the course it takes, the dynamics that evolve, and the collateral damage left in its wake.

Here are the five risks I have my eyes on. I have written about each of them, and will continue to do so.

Climate
Climate is the dominant risk. Not only is it systemic, but it might become existential. Although it will evolve over decades, climate risk is already making its effects felt on energy, agriculture, production and supply chains. And the follow-on effects are on the horizon with immigration issues and geopolitical conflict.

Demographics
Demographic risk stems from an aging population and smaller labor supply. It involves health costs and the strain of social programs, as well as production effects due to the smaller labor force. These problems are starting to come to a head. And because we already know what the aging population and the workforce will look like a generation from now (without the effects of immigration), it is a risk only if it is ignored.

Deglobalization
Deglobalization will affect production costs and the supply chain. It will also spur a related geopolitical risk with China, since deglobalization is basically de-China-ization. We have seen globalization only march forward over the past two generations, so any effects from reversing it won’t happen overnight.

Artificial Intelligence
AI is a wild card in economic risk questions because there is no precedent for it, and it is so new that the role it will play in the next few decades is still a mystery to us. (See our Fabric article, “The Risk of AI is Not Coming From Where You Think.”) Certainly to some people it means “the end of work,” or at least a shift in costs for different industries, and that will likely result in societal effects. AI will also change the nature of war, perhaps taking soldiers out of the loop. That would be a positive thing.

Lost Decades
Standard risks become material when one risk starts to follow another, leading to a decade or more of sideways markets. The risks from inflation, from recession, from an irrational exuberance in fundamentals, from high leverage or from overstretched credit might lead the market to drop for a few years. But there is a greater risk if the problems pile on, and one happens after another. That might happen through bad luck. Or maybe one shock sets up the next. Or perhaps one shock has an outsize effect in a market weakened and vulnerable from earlier blows.

Are we in for a lost decade? We’ll see.

Rick Bookstaber is the co-founder of Fabric RQ, a technology firm for risk-aware portfolio design.