Resolve to Maintain Your Fiscal Good Health in 2018
It’s that time of year again when most of us start thinking about New Year’s Resolutions. Year after year, polls show that the most popular resolutions involve losing weight and/or exercising; in other words, improving our health. That’s smart, but don’t forget that physical and mental health go hand in hand, and stress and worry can undermine anyone’s efforts to achieve overall good health through diet and exercise alone.
I believe achieving—or at least working toward—fiscal good health can contribute greatly toward improving one’s health in general. That’s a pretty logical idea when you consider that studies consistently show the number one cause of stress for most Americans is worrying about money. That worry can increase significantly as retirement approaches—but it doesn’t have to.
The Right Mindset
For much of this year, as the financial markets have entered new realms of irrationality, I have focused on the importance of adopting the right mindset for good fiscal health. The right financial tools and strategies are essential, of course, but odds are, you aren’t going to end up using them unless you make the necessary shift in the way you think about saving and investing within 10 or 15 years of retirement.
If you’ve kept up with my monthly newsletters, you already know all this, but just as you must work to maintain good physical health once you achieve it, you must make the same efforts with your fiscal health. It’s never a good idea to put any part of your financial plan on autopilot, and that includes the psychology behind it. It can be especially tempting in this day and age, with so much hype around the overinflated stock market, to fall back into outmoded ways of thinking and start thinking of “growth” as the be-all and end-all of financial success.
Not only is that potentially dangerous, it’s just plain wrong. I pointed this out in a recent newsletter in which I explained that when most people say they want “growth,” what they really mean is they want a good, competitive return. Total return, remember, is the sum of both growth (in the form of capital appreciation) and income (in the form of interest and dividends). In my experience, staying focused on the latter more so than the former near and during retirement is the key to reducing risk, thus reducing stress and maintaining good fiscal health.
Remember, too, that this can be done without necessarily sacrificing return, as income-based investors have proven since the turn of the century. As I pointed out recently, although the stock market has soared by over 60 percent since 2000 (and over 20 percent since just last October), the actual average annualized return for buy-and-hold investors has been about 5 percent with dividends factored in. Plus, they had to endure the stress and uncertainty of two major market plunges—from 2000 to 2003 and 2007 to 2009.
By comparison, many income-based investors whose portfolios have been properly managed during this same period have achieved close to 5 percent income annually and greater than a 5 percent average annualized return! More importantly, they’ve done it with far less risk of a major loss during those two huge market drops, and without the continued risk of a third major stock market drop. To put that all in a simple formula that summarizes my point: comparable return plus less risk equals less stress and improved fiscal good health!
Get Healthy, Stay Healthy
So, by that logic, the first financial resolution on your list should be to make that shift if you haven’t yet done so. You should reexamine your way of thinking to ensure you still have the right mindset for saving and investing after age 50—a mindset in which protection and income are your top priorities. Some additional resolutions that might accompany and help you achieve the first one include the following:
Revisit Your Goals – I recommended doing this as part of your year-end financial planning checklist in last month’s newsletter, but if you don’t get to it before the end of the year, make it a top priority after January 1. Again, goals can change, and sometimes they must be adjusted in response to new developments and circumstances in our lives. At the same time, your financial strategy may periodically need to be adjusted to make sure it is still aligned with your goals—and not potentially jeopardizing them.
Reexamine Your Risk – This is another one I recommended for your year-end checklist, but there is never a bad time to schedule a meeting with your advisor to better ensure that no new potential “weak spots” have developed in your financial plan. Again, long-term fiscal good health is, just like physical health, a matter of maintenance. That includes working with your advisor to maintain the appropriate strategies in accordance with the appropriate mindset.
Help Someone Else “Get Healthy” – Study after study has shown that doing good for others is also good for you! So, when taking steps to improve your own fiscal health, include regular efforts to also improve the fiscal health of people you know and care about. That effort could mean making a commitment to invite someone to an educational workshop. It could mean striking up a conversation with one person each month about growth versus return and opening their eyes to the fact that increasing one’s retirement income actually involves reducing financial risk, not increasing it. Or, you could simply recommend a book geared toward educating investors near retirement about how to achieve fiscal good health by reducing risk and focusing on income. There are several such books on the market now, and I would be happy to recommend or even provide you with one. It would make a great Christmas gift!
Happy New Year!
Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. Shala Financial and Sound Income Strategies, LLC are not associated entities.