Volume 94 No. 1 - January 2023
The start of a new year promises new beginnings and the opportunity to reflect on where we are and where we want to go. We often advise clients that January marks a good time to review their financial strategies and adjust them, based on changes brought on by recent life events.
Proper financial health is not something you achieve once and keep forever—without some work. It’s something that you work toward and then maintain. It requires organization, planning, strategy, and knowledge. The investment portfolio is often the core of financial well-being. It is important to ensure your portfolio reflects your personal financial goals.
We can take this time during the cold days of winter to reflect on our finances and take steps to prepare for the future and the circumstances most likely to emerge as we proceed into 2023 and beyond.
January: A Good Time for a Financial Review
The start of a new year is a good time to review our personal financial situation for a few reasons:
· We naturally look to the start of a new year as an opportune time to set goals, devise new plans, and reflect on where they are.
· Many sources of income and expenses are calculated on monthly, quarterly, or annual cycles, making January a good time to compare budgets with actual income and expenses.
· Many of us receive annual financial reporting in January, making it easier to access the information we need to determine our financial position.
Even though January represents a great opportunity to perform a personal financial review, we should remember that these reviews are not one-time activities. Just as the market and the larger macroeconomic environment continuously evolve so do our personal financial situations and life events.
When you have an accurate and complete understanding of your financial situation, you can make better financial decisions for your future that help you drive toward your financial and personal goals.
Some Things to Consider
Buckets: We like to use the analogy of bucket investing. In general, there are two buckets that each investor should have: short-term and long-term. The short-term bucket consists of cash and cash equivalents that are used to fund everyday expenses for the year ahead. The amount of cash to maintain in this bucket depends on many factors. Some factors to consider are sources of income, stage of life, and how many months of typical spending you would like to have in cash. Some clients prefer to pre-fund two years of expected expenses. The long-term bucket typically consists of stocks and other securities that are invested for long-term goals.
Individual Goals: Have your goals changed since the last time you took stock of your financial well-being? If a major life event such as retirement or sending your children to college is approaching, how will that influence your life goals? Have you had a change in your career? The goals you set one, five, or ten years ago may no longer be right for you.
Goals set the course of any financial strategy. If you plan to purchase a vacation home, you may want to save for a down payment. If you have recently retired, you will likely want to consider shifting from retirement saving to retirement spending. If you have decided that you would like to retire earlier, you may need to save more and pursue strategies that will grow your savings.
By ensuring that your goals are synced with your financial strategy, you can work toward having the resources you will need to reach them. It is important for us to understand the changes in your goals so your investments can reflect these goals.
Target Allocations: Life events can change the target allocations reflected in your investment portfolio. When you’re early-career, you have a longer time horizon for your investments and can pursue higher-risk investment strategies that could result in higher returns. During this stage of life, you have the time to ride out market volatility and many years of earning potential ahead.
As we progress through our careers and near retirement when our incomes normally decrease, the time horizon changes, and target asset allocations may need to change as well. Depending on individual circumstances, this may be a good time to increase allocation to bonds. The benefit of bond investments near or in retirement is a more stable income stream of which to draw from if necessary, and less volatility in the portfolio.
We’re Here to Help
For years, we have helped our clients review their financial situations, set goals, and work toward them. It’s that long-term focus that helps us prepare our clients for every kind of market.
We believe it’s important to understand the people behind the portfolios we manage and work with them personally to determine their goals and help them reach them. Investment management is never a static, numbers-only exercise. This year, we intend to review past, present, and future objectives with our clients to ensure your portfolio continues to reflect client goals and objectives.
If at any time, you have changes to your goals, or would simply like to revisit your goals, please contact us and we will help you approach the exercise of creating or reviewing your financial goals and working toward them. For years, our firm has helped clients set their financial course and we’re still here, working for you and the future you want to create.
Investment Counsel Inc., a Division of LaFleur & Godfrey, is a registered investment adviser. Registration does not imply government endorsement or that the advisor has attained a level of skill or training. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. *This newsletter was offered by our predecessor, Investment Counsel, Inc. from 1929 to 2021.