This time of year is always busy with new beginnings and new ideas. Resolutions sometimes stick but always give a good chance to think about the future. Here are three ideas for 2022 to help keep your finances running smoothly.
Watch out for cash.
With 2021’s inflation uptick and the low interest rates in bank accounts and CDs, there’s almost never been a worse time to hold cash. A cash position is losing 5-6 percent of purchasing power every year at this rate, so stashing cash isn’t as defensive as it might seem. While the stock market might seem due for a correction (and in fact one might be right around the corner), putting money in a diversified portfolio is still the best way to fight inflation and hopefully achieve some real returns.
If you have a specific need for cash soon, like an upcoming down payment or college expense, it can make sense to hold cash. However, if you’re holding cash just because you’re hesitant about uncertainty with no specific spending needs in the near future, you probably should consider putting that money to work. Big cash positions are eroded by inflation and can’t enjoy the long-term power of compounding.
Be skeptical.
I enjoy a good conspiracy theory, but I work hard to differentiate what might be possible from what might be probable. In the last year, I’ve seen an unprecedented number of people make major life decisions (financial and otherwise) on what I might charitably call questionable theories. Keep in mind that the modern information industry is extremely good at getting us hooked on information that connects with our biases and fears. Increasingly, the selective presentation of facts can appeal to our worst instincts.
Yes, our national discourse and politics seem unusually polarized right now. However, there are countless things that are going very right in our world. Markets move up and down and politicians come and go, and staying the course in a diversified portfolio is the best way to navigate toward a secure financial future.
Think about spending.
Markets are uncertain and always seem the most uncertain now. In retrospect, everything has always worked out okay in the past, but will this time be different? As investment professionals, we spend a lot of time and effort building the best portfolios we can for our investors, but we don’t know the future, either.
If you’re concerned about the future, the one thing you have absolute control over is to spend less. If you’re really concerned about the future, spend a lot less! This has two powerful effects. For one, less spending allows you to more quickly build up savings and investments, which give a margin of safety for future needs. Building a fulfilling life with less spending means in the worst case you can be more resilient to a job loss, unexpected health event, or other financial shock. In the best case, it means you can retire or downshift your career sooner than you planned. Investments are just one small part of a successful financial plan, and spending discipline can have a much more dramatic effect on your future than any other factor.
Gene Gard is Chief Investment Officer at Telarray, a Memphis-based wealth management firm that helps families navigate investment, tax, estate, and retirement decisions. Ask him your question at
ggard@telarrayadvisors.com or sign up for the next free online seminar on the Events tab at telarrayadvisors.com.
