2022 was a year of COVID variants lingering, supply constraints continuing, and the highest inflation we’ve seen in 40 years plus the added complications due to the war in Ukraine which stretched globally. The volatile nature of this year caused a lot of unrest with investors and those getting ready to retire. When looking back at this year, we want to take a moment to reflect on what has been said and what can be done.
We know that when the market gets volatile the media begins pontificating on what you “should” do and it can be hard to parse out credible information. Our goal for 2022 was to highlight the potential positives of a volatile market while demystifying the "safe" alternatives that always seem extra tempting in times like these.
One of the core pillars of the strategy used at Novi Wealth Partners is that good returns aren't about timing the markets, they are about time in the market. Chief Planning Officer and Partner, Ryan M. Vogel, CFP® reminds readers in his piece, Groundhog Day Deja Vu, that this is not the first (or the last) time the market has become volatile.
" Volatility is part of being a savvy investor. The key is to manage it, not to dig a groundhog hole and hide from it (like your shadow). If nothing else, it may be time to re-think your time horizon. There may be some volatility and downdrafts in the markets over the next few months as investors adjust to the new rate environment. But stock investing should be measured in at least five-year intervals, and more often in decades. "
Perhaps the most interesting factoid in the article was learning that since the 1870s U.S. stocks have never lost money over any rolling 20-year period and very rarely lost money over any rolling 10-year period. We understand it can be tempting to focus on the present but Vogel urges readers to think of their financial plan in a bigger, broader sense.
Insights of 2022
As financial planners, most of the time our posts about retirement topics dominate our most-read pieces. This year our Most Read Pieces covered a myriad of topics: global concerns, local tax updates, and our suggestions when trying to balance family and finances.
Global Impacts (Russia and Ukraine)
The most discussed piece that has been written this year was focused on Novi Wealth as a global citizen. Penned by our president and managing partner, Robert B. Dunn, CFP®, the Russia-Ukraine Crisis: Impact on Humanity and Well-Being was the most popular piece of its quarter – but more humbling it was a piece that resonated with our Novi Family and Friends. Without sensationalism or unfounded predictions, Dunn outlines the strategy for moving forwards during tumultuous geopolitical conditions. He recognizes that although the human toll is significant and felt keenly; the devastation may not reflect proportionately in the global economy. There is really no way to accurately predict what will happen, we can only go by historical information. Instead, he underscores the importance of the built-in stability of a properly diversified portfolio when paired with a cohesive financial plan.
Retirement Insights of 2022
Daniel Satz, CFP®, MPAS®, CRPC®, AEMA® answers what is perhaps the most common question our advisors get asked: how much money is enough? Instead of focusing on calculating the "right" number, Satz focuses the importance of asking the right question. He asks clients to consider more than basic material goods when picturing retirement.
“…it’s okay to splurge on an expensive dinner, box seats at the ballgame, or a nice bottle of wine once in a while. Take all of your kids and grandkids on an exotic family vacation to an island that they’ll never forget. You can’t put a price tag on memorable experiences your money can support. One of the most common regrets people have on their deathbed is not about the things they did during their life – it’s the things they didn’t do when they had the chance.”
Satz notes that the way one handles money as an adult is often a reflection of money messages that they learned as children. It can be difficult to indulge in luxuries when logic says that they are not necessary. The key seems to be to redefine “luxury,” a luxury could be investing in your health or using money to free up time to spend with loved ones. In financial planning, the “obvious” can be very nuanced. The definition for words that we use every day (e.g. luxury, necessity, or emergency) can have very different connotations depending on the individual or family unit.
The Threat of Recession in 2022
We recognize it may be hard to think of luxury with the worry of the recession on one’s mind. By August, several clients had asked if they needed to adjust their financial plans if we were to go into a recession. Ryan Vogel cuts to the heart of the matter in his piece: Does a Recession Matter to My Financial Plan?
“The short answer is "no," since the long-term plans we put together for clients already have occasional recessions and stock market declines built in. In fact, there are some great opportunities to implement retirement planning, investing, and tax planning strategies in this environment…”
The long answer? There are two different ways to define “recession.” Traditionally, a recession is two consecutive quarters of negative Gross Domestic Product (GDP) growth. Less concisely, the National Bureau of Economic Research defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months” based on an abundance of economic data (including gross domestic product, employment, household income, etc.). In both cases, we would likely already be in a recession before it is declared. So, what can you do? For Novi clients, you can rest easy knowing that testing for recession conditions or times of stock declines has been built into your plan.
Annuities: Too Good To Be True
Despite the reassurances of a comprehensive plan, we had a steady stream of questions this year regarding annuities. We understand the temptation, annuities tend to be positioned as no-risk money-generating investment vehicles. But Ryan Vogel cautions readers:
“When evaluating an annuity product, you’ll have to sift through pages and pages of fine print to see that you’re paying lots of money in the form of sales commissions, mortality and expense fees, and high underlying investment fees. And most troublesome of all, the insurance company gets to keep all the money left in your account when you pass on.”
Daniel Satz, CFP® doubles down on in agreement, disclosing that annuities sound attractive in theory but are often loaded with hidden fees and restrictive when the need to liquidate them in emergency situations occurs. Insurance companies prey on an investor’s fear of losing money in a volatile market with a pitch that will promise x% of growth. This growth usually cannot compare to a properly diversified portfolio of stocks and bonds. It is important that decisions are not made in a vacuum or under mountains of jargon from a person who knocks on your front door.
Focus On What You Can Control
In 2022 Make Lemonade Out of Lemons, Ryan Dunn, CFP® explains that there are opportunities to prosper in every market climate. He clarifies that the path to financial freedom is filled with investment theory, tax strategies, and asset allocation considerations but the emotional and psychological considerations to get you there are just as important. He highlights a few tried-and-true methods that we use at Novi to combat potential financial pitfalls:
1. Tax-loss harvesting. Selling securities at a loss and buying similar security allows you to use losses from underperforming investments to offset taxable gains from other investments.
2. Rebalancing. When the opportunity arises, we sell asset classes that are doing well and buy asset classes that are not performing well in the short term.
Want more information on rebalancing your portfolio? Check out Robert Dunn’s post: Time to Rebalance Your Portfolio
3. Investing cash that has been sitting on the sidelines. If you’re sitting on lots of cash in a savings account that’s earning essentially no interest, now is a great time to get that money working for you at discounted prices.
4. Roth conversions. IRA values are down, but that’s not necessarily a bad thing. If your income is going to be lower than normal this year due to job loss, early retirement or other circumstances it’s a great time to do a Roth conversion. That’s because your tax rate on your IRA gains will be lower. The markets will eventually bounce back.
Dunn’s next piece, then shifts the focus to things anyone can do to maintain good financial habits - regardless of your financial acumen. Even though it’s winter, we highly recommend reading How to Kickstart Your Financial Spring Cleaning. This joint endeavor by Dunn and Candace Henry includes a downloadable guide of financial documents you should keep (and for how long). This particular article is filled to the brim with suggestions for streamlining your financial life and possibly saving money too.
Rounding out this year’s top read pieces is High Earner, Not Rich Yet by Brenden Leese, CFP®. Leese imparts guidance which can lay down the foundation of creating long-lasting wealth. He breaks down financial myths with fundamental steps young professionals can take to begin controlling their financial narrative.
“…you want to make sure ALL of your money is working as hard as you do. If you or another high earning young adult in your life has questions about the aforementioned strategies above, please don’t hesitate to reach out.”
If there was one over arching theme this year, it was the importances of time. For HENRYS time is one off their biggest advantages if used correctly – the wonders of compound interest. For pre-retirees and retirees, it is about, recognizing the value of your time. For all, it is about not trying to predict what will happen over time.
Conclusion
We thank you for reading our weekly blog so faithfully. If you have suggestions for future topics to cover, please contact our Client Experience Coordinator, Candace Henry. We’d love to hear from you and hear about what you’d like to read in 2023.