Strategies

In two weeks, a new year begins.  What financial strategies can assist investors in getting closer to what they want?

Knowing what you want to accomplish and when before investing a dollar is valuable.  The difficulty is many don’t have the answers they need when starting to save early in their career.  The answers they do have often change overtime as their wealth matures and their professional responsibilities expand.

For many investors, heeding the advice from parents or a mentor, their investing journey begins by funding their employer retirement account and collecting a match.  It’s a great step in the right direction as time is your best resource.  Decades later, mistakes have been made, experience has been gained, and an investor’s knowledge has grown along with accumulating various accounts, now what?

What starts as creating more is often revised as an investor becomes clearer on what they want from their investments.  Defining success not by account balances or rates of return, one may step back and think strategically about what they are doing and why.  Having a raised awareness on cash reserves, short term goals, and long-term spending are the pieces that complete the puzzle.

Priorities that are short term in nature, say the next five years, are often best served by holding cash.  It’s not about current returns as much as it is a return of the dollars when needed.  Squeezing yield from short term investments isn’t worth it; it’s been a rough year for CDs, bonds, and fixed income.  In addition, converting these investments to cash an investor must factor in taxes, transaction, and liquidity costs.  Holding cash reserves is simple and more accessible.

Long term investors may find themselves with more equities and not enough cash at various times.  Reviewing cash reserves and short-term goals is vital as your wealth expands.  You must leave room for error and the unexpected.  When you need cash, sell equities, and create the necessary liquidity that makes your plan work.  Equally important, when you have excess cash to invest, invest it with purpose and a plan.

Many would welcome more certainty in their investments.  The catch is investments with more certainty typically don’t keep pace with the rising cost of life.  It’s difficult to watch life get more expensive and your investments not keep up.  Inflation continues to persist today keeping costs higher than they should be.

To hedge rising costs over a three-decade retirement, an investor must look beyond investments with certainty.  They must identify assets that may over long periods of time contract and expand in value.  This comes with less certainty along with price volatility (up/down).  A diverse portfolio of companies, not one or several in particular; but all carefully crafted around a plan may meet long-term spending needs.  Some companies will do well, some won’t, no need to spend time forecasting.  Portfolios of exchange traded funds (ETFs) offer investors access to thousands of companies that do best when coupled with a financial plan.

When strategizing for 2023, think less about outputs and more about what’s in your control.  Define investing beyond rates of return or hitting a benchmark.  The only benchmark that matters is are you on track to reaching your goals?  Answering this question periodically may increase your engagement as you get closer to what you want.  It’s not about perfection next year as much as it is about refining what you want overtime.

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