If you are anything like me & my family, January is typically a time of reflection on the previous year & a time to game plan for the year ahead. You know how it goes, setting those new year’s resolutions to join that gym, tackle those house projects, or whatever it might be that you believe brings you closer to your ultimate goal of more freedom.
However, according to a CBS news poll, the percentage of Americans who are setting goals for this upcoming year is just 29% as compared to 43% last year, a fairly dramatic decrease. I think a big reason for this is likely due to the fact that people are just more cautious in setting expectations with the uncertainty that we are all facing.
Now we of course don’t know what the world is going to serve us this year but we can make a choice to lean into our own worlds, get specific on the lifestyle that we want to live, manage our portion well, set attainable goals, & believe for the best.
As a financial advisor & owner of Parker Financial Group, I’m not surprised that year after year Americans list getting their financial life in order as one of their top resolutions or goals. However, and we can all relate to this, not everyone sees these goals come to fruition at the end of the year. Whether it is to:
- Save more
- Develop a plan for retirement
- Get out of debt
- Fund college expenses
Whatever it is, life tends to get in the way & we drift of course only to find ourselves back at square one in January of the following year. This cycle repeats itself year over year & before you know it that hill just seems too high to climb.
Now I am definitely not your go to person to get you into the best shape of your life or to tackle that kitchen remodel, but I believe I can provide you with some 1 or 2 actionable items to help you get your financial life back on track.
With that said, let’s dive into some things that we believe will help you to better build & manage your wealth here in 2022.
#1: Build Up Your Emergency Fund
Now this might seem elementary to most folks, but as it may, a 2020 survey showed that nearly 70% of Americans had less than $1,000 stashed away for emergencies. Quick tip: try to not be a part of that 70%.
One of the best ways to shore up your financial security is to have three months to a year’s worth of living expenses in emergency savings. At the very least, save in an account with liquid access to securities that have no tax or penalty consequences, such as a Roth IRA.
Having available cash to pay for unexpected expenses or to supplement the loss of regular income can prevent you from racking up high interest debt and help protect against having to tap into other investments.
#2: Pandemic Proof Your Income
The COVID-19 pandemic showed us a different side of loss. Not only were 9.5 million jobs eliminated, but lockdowns, social distancing and working from home tested the mettle of our collective mental health – the impact was nearly universal.
We can’t always predict how the next crisis will affect us but one thing remains constant, & that’s the fact that the bills must be paid. The sad truth is that banks, credit card companies, hospitals & other institutions don’t go on holiday & forget you owe them money.
Two important questions to ask yourself:
#1: How are you going to accumulate money & other assets?
#2. How are you then going to turn that money & other assets into a lifelong income stream?
For those of you still in the accumulation phase of life, what would you do if your job let you go unexpectedly? Now is the time to consider how you can deploy your skills & knowledge in building additional income streams or side hustles.
In fact, a recent Zapier study showed that:
- 34% of Americans over the age of 18 have a side hustle & that number is only growing
- Main reasons cited: to increase income, find more enjoyment & save more money
The income that you receive from a side hustle could also be put straight towards paying down those high interest credit cards or other debt obligations.
Now if you are already retired then think of ways that you can diversify your income sources so that you too can have multiple income streams in case one or more are threatened.
What we teach at Parker Financial Group is what we refer to as the, “ 3 Legged Stool of Retirement Income” This consists of:
- Pension income
- Social Security
- & Investment Income
For more and more Americans, Pension income is a thing of the past, so for most folks they rely on Social Security & income drawn from their investment accounts. With much uncertainty now surrounding the future of Social Security – it is even more paramount to ensure you’ve got a diversified income strategy to pull from in case of tough economic times. We at Parker Financial Group can help you with this.
I would also encourage you that you are never too old to start a side hustle. Don’t be afraid to turn that passion of yours into an income producing activity.
#3. Inflation-Proof Your Portfolio
Rising inflation will likely continue to test the buying power of household budgets in 2022. While you may not be able to do much about higher prices, you can help protect your investments from the impacts of inflation. I’ll now share with you some strategies we discuss with our clients at Parker Financial Group that tend to grow in tandem with inflation.
Starting with a well diversified equity portfolio; in other words, own stocks.
As Wharton’s Dr. Jeremy Siegel concludes in his classic book, Stocks for the Long Run, he states; “In the long run, stocks are extremely good hedges against inflation, while bonds are not.”
A well diversified equity portfolio composed of dividend paying stocks offers both a diversification & inflation hedge via rising dividends. However, in the age of so much uncertainty as it pertains to the stock market, it could be very easy for investors to let their fear move them to sell their investments & get out of the market entirely.
I love this quote from American investor Peter Lynch, he says, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
As again the markets are trading at all time highs I’m often asked, “Connor, when is the best time to get into the market & when is the best time to get out.” My response, “The best time to get into the market is when you have the money & the best time to get out is when you need the money”
Now of course, everyone’s season of life & financial situation is different & this is by no means a declaration to have 100% of your money in the stock market, but I believe you should always be invested with the amount appropriate for you. In terms of investments that can help guard against inflation, you’d be hard pressed to find any better alternative than U.S. equities.
In 2022 you could also look into Series I Savings Bonds. The I-Bond is guaranteed by the US government and help protect an investor from inflation by crediting his or her account with a fixed interest rate plus the annualized inflation rate of the preceding 6 months. Moreover, the account value will not decline when prices fall, earned interest is not subject to state & local taxes, & federal taxes are deferred until the bond is cashed.
Speaking of the government, you could also purchase Treasury Inflation Protected Securities (“TIPS’)’ which are securities that allow an investor’s principal to increase in tandem with inflation and decrease when inflation declines. The coupon rate remains fixed, so payouts vary based on the inflation adjusted principal. Upon maturity, the investor receives the greater of the adjusted principal or the original principal.
Another option to inflation proof your portfolio would be to consider Real Estate Investment Trusts or funds, or other alternative investments not correlated to the stock market
As we look down the pipeline of 2022, markets still face several more headwinds. Such as:
- Slowing Economic Growth
- Interest Rates
- Continued Supply Chain Disruptions
- & Political Maneuvering
In 2021 the S&P 500 finished the year at an all time high with the index returning 26.89%. With that said, I’ve got some good & bad news for you based on history.
Since 1950, the S&P 500 has been positive over 85% of the time with an average return of 11.6% after a +25% surge the year before. This showed itself to be true recently as 2019 with the S&P 500 returning 28.9% & the following year, 2020, returning a positive 16.3%
Here’s the good & the bad…
The bad news is that not once did the market outperform the prior year’s massive fortunes, but the good news is that results still beat the average market returns with a higher chance of making money. Will this trend continue, I nor anyone else knows for certain.
Now is as good a time as ever, in my opinion, to run a “stress test” on your investment portfolio. Perhaps you’re taking too much risk, or maybe not enough. If you own holdings that are particularly vulnerable to periodic bouts of volatility, consider repositioning those assets to alternatives that tend to perform reliably under duress.
It’s not a matter of IF we experience volatility, but WHEN we experience volatility. It’s important to maintain focus on long term goals, don’t let emotion drive your decisions, stay invested, & position yourself to live a life of freedom where your money is working for you.
In many things, & especially as it pertains to your investment accounts, “don’t expect what you don’t inspect”.
Parker Financial Group
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