New year, new environment, new planning

By Jason Rosener, CFP®

Whenever January 1 rolls around, you’ll hear a lot about the importance of setting resolutions.

When it comes to financial resolutions, you probably know the familiar script: Create a budget, pay down debt, save for retirement, rebalance your portfolio and replenish your emergency fund. These are all good, timeless recommendations. But in light of the challenging economic and market environment going into 2023, instead of running through this typical annual list of to-do’s, let’s try something a little different this year. Resolutions or no resolutions, I encourage you to:

  • Reassess your investing strategies to address the economic outlook for 2023. Remember to review your asset allocations and risk tolerance.
  • Review your finances and plans with your spouse or partner and discuss any changes you may be thinking about.
  • Create a spending plan that factors in today’s higher prices from high inflation. (Note: A spending plan is not the same as budgeting.)
  • Don’t be so hard on yourself.

Reassess your investing strategies to address the outlook for 2023.

In prior years when interest rates were falling and stock prices in general were rising (for example, “growth” and “value” stocks), you probably only needed to lightly recalibrate your asset allocations, unless your goals and financial situation changed significantly. Many passive equity investing strategies that employ broad index strategies, as opposed to actively managed portfolios that focus more on stock selection, may have generated sufficient risk-adjusted returns.

In today’s uncertain economy and volatile market environment, you may want to lean more toward an active-management approach, which allows asset managers to adjust portfolios according to market conditions. They may also review your position in value stocks, which tend to perform better than growth stocks during periods of high inflation and are generally less volatile.

With the aggressive rise in interest rates in the past year, yields on bonds also rose as the bond prices dropped. So, you may also want to rethink your allocation to fixed income and average maturities of bond holdings. If you moved assets from your fixed income allocation to cash during that time knowing that rising rates exert pricing pressure on longer- and intermediate-term notes and bonds, ask your advisor if you should move some of those assets back into fixed income.

Municipal bonds in particular may now offer more favorable yields compared to last year on an after-tax basis, which may be appealing if you’re in a high tax bracket. (The interest bonds pay is generally exempt from federal income taxes and may also be exempt from state and local taxes if you’re a resident in the municipalities where the bonds were issued.)

While interest rates are expected to rise further, Goldman Sachs’ Investment Strategy Group (ISG) recommends that PFM clients gradually move more toward investment-grade intermediate-duration fixed income securities as part of a well-diversified, long-term strategic asset allocation consistent with their risk tolerance. I’ll often consider ISG’s general recommendations and then tailor my client’s strategy. So for example, if you’re satisfied with a lower yield but want less volatility, I might suggest a larger allocation to shorter-term fixed income securities than the general model.

While I conduct comprehensive portfolio reviews every year regardless of market conditions, if you invest on your own or use another advisor, I suggest you consider these strategies, which may be more involved than rebalancing your portfolio during past bull markets.

While at it, ask about other investing strategies such as dollar cost averaging, and tax-loss harvesting. Maybe you’ll want to diversify some of your portfolio into less-cyclical sectors and asset classes that tend to outperform in higher inflation environments to help cushion your portfolio against inflation’s effects.

In terms of your cash reserves, such as money you keep in a savings account, money market or short-term CDs, shop around for rates. Their yields have also gone up.

Check in with your spouse or partner.

The new year is a natural time to do a financial check-in with your spouse or partner. Whether you or your partner handles the household finances, it’s important for you both to have a clear picture of where you are financially. I believe they can help you be realistic about your financial goals for the year.

And perhaps, more importantly, they can help you better focus on making the practical changes you need to actually improve your financial life—not just for the new year, but for the years ahead.

One good place to start is updating your net worth. The start of the year is a great time to do this because it allows you to look back on any major life, economic and market events in the past year that might have changed your financial situation. Calculating your net worth also gives you an opportunity to review your financial progress. What were your successes? Where did you fall short?

Take stock of the good and the bad. This can help you figure out what you need to prioritize or if you need to make any course corrections in the new year. You can start by getting all your financial statements together, reviewing your assets and liabilities, and asking yourself the basics.

How are your savings, spending, investments and debts looking? How have higher prices impacted how much you spend? The results will be important when you create a new spending plan. If you own a home (or homes), are they up or down in value?

This is also a good time to review your estate plans. Are there any beneficiaries or other instructions that need to be updated? And don’t forget about life insurance—are your coverages up to date?

As a financial advisor, this is something that I go over with my wife each year. Not only does it help us lay out our financial goals for the new year, but it also gives me the peace of mind in knowing that if anything were to happen to me, my wife wouldn’t have to worry about deciphering the state of our finances.

Now while this might sound like a lot of work, it’s really about checking off the basics and communicating with your partner. You don’t have to do everything all at once. Nobody wants to sit at the kitchen table for hours looking over financial statements.

Remember, the point of having these conversations with your spouse or partner is so that they can be part of the financial dialogue. And you can break it up into bite-size pieces: “Do you have a second to talk about the house?” or “Hey, let me fill you in on what I’m thinking about for our investments this year.” You could even plan a few financial date nights to talk about the weightier subjects. In my experience, it’s easier to talk things over food and drinks.

And if you find that your financial situation is more complex than you anticipated, this is where you can bring in a financial advisor to help. It’s important to discuss financial matters with your spouse or partner. But it can be challenging, particularly if the other person views money and making financial decisions differently than you do. For example, some people tend to spend too much today for enjoyment rather than saving enough for tomorrow, whereas others may be too conservative when it comes to saving for the future.

Create a spending plan.

Some may think that a spending plan is simply another way of encouraging you to budget. After all, isn’t a spending plan and a budget basically the same thing?

Not quite.

While both can help you manage your money, I believe there’s an important difference between the two. Each brings out a different mindset when it comes to money.

With a budget, you typically put a dollar amount on what you can spend in certain categories. For example, you may give yourself a strict budget of $20 a week for lattes or $100 a week on dining out. In this way, budgets can feel restrictive.

And while they work for some people, many have a hard time keeping up with them, especially if a budget is too unrealistic or inflexible. In my view, sometimes when a budget is too regimented, you’re essentially setting yourself up to fail.

On the other hand, a spending plan can provide more flexibility or a sense of direction and freedom when it comes to how you spend your money.

Instead of setting hard top-line numbers for each spending category, after you’ve saved for your goals and covered your essentials, what’s left over is yours to spend on whatever is most important to you. There’s no need to restrict yourself to X number of lattes each week or say going out tonight is not in the budget.

If going out regularly to get a good cup of coffee or meal with a friend is important to you, go for it. In my experience, those few extra lattes here or there aren’t going to make or break your long-term financial plan. As long as you’re mindful about where your trade-offs are, cover your essentials and reallocate as needed, you should be in good shape.

You can look at this way: With a spending plan, you don’t need to micro-manage your discretionary categories down to the dollar. You simply need some general parameters or guardrails in the plan. This way, you can be a little more honest with yourself about where you want to focus your spending and how best to direct your resources.

In short, a spending plan can give you a greater sense of control and direction over your money.

Again, the new year is a good time to think about your spending priorities. Because once you nail down your priorities, they can motivate you to keep moving toward your goals throughout the year.

For me, each year since the start of the pandemic, I try to make sure my spending plans include at least one anchor or fun experience for my family. This not only helps to motivate me but also gives me something to look forward to!

Don’t be so hard on yourself.

A lot of times, people may have an all-or-nothing attitude when it comes to financial resolutions. When progress is slow or when there are setbacks, it can be easy to feel discouraged.

For the new year, I encourage you to remain practical and realistic in your financial planning. At the same time, don’t be so hard on yourself if you veer off track. Every plan will hit a bump in the road at some point. That’s life, and things happen.

I often remind my clients that overspending a little one year isn’t going to break your plan. One bad year doesn’t make a trend. Financial planning is a long-term game, and success isn’t linear.

So, give yourself some leeway or wiggle room to make course corrections. Did you try something last year and it didn’t work out? Let’s learn from that and see what adjustments we can make to help set you up for success this year.

It’s also important to acknowledge how much you have been able to accomplish so far and then let that motivate you to keep going!

When I work with my clients, I like to figure out ways to help them make it easier on themselves to succeed. For example, sometimes it’s about leveraging technology, like automating certain aspects of their saving and investing, or using a spending app to help them see where their money is going each month. Or maybe it’s about setting up a regular check-in with their financial advisor to talk through whatever roadblocks they may have.

The last word

Whether or not you’re planning to make resolutions, I hope my suggestions inspire you to think about financial planning a little differently this year.

If you are someone who’s big on setting New Year resolutions, I believe these three steps can bring some clarity and confidence to your resolution-making and help you feel more confident about using money to live the life you want today, while preparing for tomorrow. And if you’ve nailed down your resolutions already, consider going over them with a financial advisor who can help you see them through.

You got this! Happy New Year.


United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser, an affiliate of Goldman Sachs & Co. LLC (“GS&Co.”), and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization. Advisory services are offered through United Capital Financial Advisers, LLC and brokerage services are offered through GS&Co., member FINRA/SIPC. How we are compensated by you may change over time and will depend on various factors. Please ask questions and refer to GS PFM’s publicly available Form ADV where applicable.

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Rosener
ABOUT THE AUTHOR

Jason Rosener, CFP®

United Capital Financial Advisers, LLC d/b/a Goldman Sachs Personal Financial Management (“GS PFM”) is a registered investment adviser and an affiliate of Goldman Sachs & Co. LLC and subsidiary of The Goldman Sachs Group, Inc., a worldwide, full-service investment banking, broker-dealer, asset management, and financial services organization.

The information contained herein is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered investment advice. GS PFM does not provide legal, tax, or accounting advice. Clients should obtain their own independent legal, tax, or accounting advice based on their particular circumstances. Please contact your financial adviser with questions about your specific needs and circumstances.

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