It is that time of year when goals of every sort are made – for work, family, health and, yes, personal finances. Thinking about and writing down goals for each of these areas can be productive in itself. But then getting practical and boiling down a list of goals into a handful of things – or even JUST ONE THING – that a person resolves to make happen is critical.
Of course, this task is not easy, but hey, it is January 10th. Let’s give it a go.
Here is a goal that could be either a lifetime goal, or a one- or two-year goal that could make a lifetime of difference:
Focus on Saving in order to maintain Patience – in the event of the inevitable market decline. My nickname for this goal is FSP.
The chart above illustrates general categories of goals:
- near-term
- longer-term.
You can fill in the blanks for what is near-term and more urgent and day-to-day; then what is longer-term and perhaps more discretionary and aspirational. Building longer-term savings requires patience. Near-term and essential items need to be funded with more secure instruments such as cash and bonds. Longer-term desires can be funded with more risky assets such as stocks, or a combination of cash, bonds and stocks.
The reasoning around “FSP”, or Focus on Savings to maintain Patience, is as follows:
- In 2024, more than 20% of all trading days ended in an all-time market high*
- That translated into 57 new market highs – still not the G.O.A.T. but close…
- … and an average of more than one new all-time high per week.
- Emotional highs have led a good deal of investors to remain concentrated (not exclusively but still concentrated) in a narrow group of high-flying tech stocks.
- “Crypto fever” may have worked out in 2024 for certain investors, but risks remain in terms of quantifying and tracking value.
- As of the 3rd quarter of 2024, consumer debt stood at a record high; and when last reported by household in 2023, that meant an average debt of $104,215 per household.** (That amount is only the average.)
In good times like we have had over the past decade, with its share of declines but overall record gains, there becomes a temptation to ignore risk and “spend now, save later”. Anxiety and stress can creep in fast and lead to regret about not having had a “plan”.
Quantifying spending today and setting aside anywhere from 3 to 5 years of projected spending, even more for the most risk averse, is the order of the day. How and in what vehicles to set aside that savings (cash, bonds, US Treasuries, inflation-adjusted securities, stocks, etc.)? That is a conversation to have with your financial adviser or the person you rely on to help craft your scenario to maintain your lifestyle.
Try the FSP concept for starters.
*There are approximately 250 trading days in a calendar year, and there were 57 new all-time highs in the S&P 500 (data from Charlie Bilello) in 2024, as of the data report.
** Motley Fool
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.