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A Financial Advisors Holiday Wish List

The past couple weeks around the Raidt household have included lots of holiday prep.  Decorating our Christmas tree, baking cookies, shopping – the usual stuff.  My three-year-old daughter is grasping the idea of Christmas and Santa, for the first time this year, which makes it all that much more fun.  I have enjoyed watching the old classic shows like Rudolph, Frosty and The Grinch.  Each night before bed I indulge her with a dramatic reading from my own childhood copy of The Night Before Christmas.  As I was talking to my daughter about what is on her wish list a few nights ago I got the idea for this blog post – what would be on my holiday wish list, as a financial advisor.  Here are 4 things I came up with.

Smooth & Average Market Return

If anything is certain, it is that I will not be getting this, but one can dream, right?  As a financial planner we estimate long-term returns to help our clients make projections about the likelihood of reaching their goals.  Over the long-term we can predict outcomes with a relatively high degree of accuracy.  Over the short-term, year by year, is a different story.  2020 has been a perfect example of the short-term volatility we see in market returns.  The first quarter saw markets take a dive as the reality of the COVID pandemic began to set in, US markets were down 20.9% and developed international markets saw their worst quarter since January 2001 with a decline of 23.3%.  In the second quarter, we got a dose of stimulus, some friendly FED policy, and most lockdowns were lifted – the markets roared back to life.  The US Markets were up 22% in the second quarter, the best quarter since January 2001.  Global markets followed suit with international developed up 15% and emerging markets up 18%.  The rally has continued throughout the rest of the year, albeit not quite as strongly, and we are now in positive territory for the year.  At the time of this writing the S&P 500 was up 14.4% for the year.  Pretty amazing when you consider at its bottom on March 23rd it was down over 30%!  So, what is my wish?  How about smooth gains of 2.5% per quarter for a nice long-term average +10% in 2021.  Is that too much to ask? Answer – yes it absolutely is.

Stable / Low Interest Rates

Interest rates have been on a steady decline for the past forty years or so. The Federal Reserve has indicated they are not likely to raise interest rates on their end until there is some evidence that inflation is picking up – maybe in 2023 they say.  While low interest rates are not a great thing for savers as you have likely seen reflected by the near zero interest in your savings account – they are good for consumers.  We are seeing fantastic deals on car loans.  Mortgage rates are at or near all-time lows which has driven a strong housing market and made refinancing or tapping home equity lines of credit very attractive.  At some point rates will need to rise – but a period of stable / low rates is something we can take advantage of for the time being.

Good Financial Habits

This is a wish to improve the financial well-being of all.  No matter where you are in your financial journey it is important to develop good habits.  My wish would be that everyone institutes one change to help enhance their cash flow and savings rate.  This would go a long way towards everyone reaching their long-term goals.  Due to the impact of compounding returns the earlier you start saving money the better.  If you are still in your earning years, save a little more this year than last year.  Set up an automatic deposit to your savings or investment account to make it easy for you.  If you are already retired, try not to exceed your planned spending limit for the year.  Review your credit card or checking account statement and find one area where you can cut costs.  Every little bit helps, and it only takes small changes to have a big impact over the long-term.

A COVID Vaccine

This wish list item appears to be on the horizon, and it cannot come soon enough.  Sadly, nearly all of us have been directly and negatively impacted by the toll the virus has taken.  From the standpoint of the jobs market, unemployment, now at 6.7%, continues to improve following the record highs this spring.  Many businesses have still not recovered from the impacts of the pandemic.  Hopefully, a vaccine allows us all to return to a sense of normal life with schools in session, bars and restaurants at full capacity, and stadiums full of screaming fans.  Most importantly, we will be able to reconnect and embrace friends and loved ones that we have not seen in far too long.

I know none of us, me included, will get everything on our list this season.  However, I do hope that everyone will find peace, love, and time to relax after a trying and unique year.  Since this will be my last blog post of 2020 – I wish you all a wonderful holiday season and much luck and prosperity in the year ahead.