Every year millions of people set new year’s resolutions. However, very few can stick to their resolutions long-term. A study done by the University of Scranton found that 23% of people quit their resolution after 1 week. Only 19% stick to their resolution for at least 2 years.
As advisors, we want to help you succeed, not just financially, but with everything in life. So here are some tips for sticking to your resolutions.
Know Your “Why”. Many people set a goal but their why is “just because”. If you don’t know why you are doing something, and that why is not a driving force, you are less likely to do it. An example of a resolution with a good why is: I want to lose weight and be in shape so that I can play with my kids/grandkids without being out of breath quickly. Your kids/grandkids are now motivating factors in your goal, and you are more likely to do it for them.
Setup Accountability. In our experience, you are more likely to succeed at anything if someone, or something, is there to hold your feet to the fire. Partner with a family member or friend that can help nudge and push you to your goal.
Plan, Plan, Plan. We can all agree that one of the biggest reasons for not reaching a goal is that we don’t plan how to get the goal. We want to lose weight, but don’t have a diet and exercise plan. We want to go on a big vacation, but don’t plan how to save up for it. Take the time to plan out the details of how to reach your goal.
We wish you all a Happy New Year and may we all be in the 19% to accomplish our resolutions.
Have you ever gotten a present you didn’t really want but knew that you kinda sorta needed? (For example, socks.) Just before Christmas, that’s exactly what the Federal Reserve decided to give the country. Except the present wasn’t socks, but another interest rate hike meant to combat inflation.
Suddenly, socks don’t seem so bad, do they?
The markets reacted predictably, with the Dow dropping over 750 points the following day.1 So, in this message, we want to ensure you know what’s currently going on during the last few weeks of this year and what’s potentially on the table for next. We also want to assure you that our team has expected this. That way, armed with both understanding and assurance, you can focus on enjoying the holidays and spending time with your family.
In short, all the things that matter.
Understanding the Fed’s Most Recent Move
On December 14, the Federal Reserve announced their seventh and final interest rate hike of 2022, bringing the Federal Funds Rate to a range of 4.25% to 4.50%.1
Now, what’s interesting about this move isn’t that it happened. Everyone knew another rate increase was coming. What’s interesting is the number the Fed chose: 0.50%.1
It’s easy to forget, but interest rates were barely above zero less than twelve months ago. Back then, the Fed was still trying to stimulate the post-COVID economy by keeping rates low and buying billions of dollars in bonds every month. Unfortunately, while this was going on, inflation was starting to ramp up, too.
Think of it like hitting the accelerator on your car…right before you hit that patch of ice.
The Fed began reversing course in March, but it wasn’t until June that they began hiking rates in earnest. What followed was the fastest rise in interest rates since the 1980s, all designed to slow the economy and bring prices down. Over the next several months, the Fed raised rates by 0.75% at a time.2 That may not sound like much on its own, but the full scope becomes clear when you realize that rates have gone from 0% to over 4% in just nine months.
The Fed’s latest increase, however, was only 0.50%, which we haven’t seen since back in May. It’s the first sign the Fed may now be moving to slow the pace of rate hikes – although there are no plans to end the hikes anytime soon. (More on this in a minute.)
Interest Rate Changes in 20222
Date
Rate Change
Federal Funds Rate
3/17/22
+0.25%
0.25% to 0.50%
5/2/22
+0.50%
0.75% to 1.00%
6/16/22
+0.75%
1.5% to 1.75%
7/27/22
+0.75%
2.25% to 2.5%
9/21/22
+0.75%
3% to 3.25%
11/2/22
+0.75%
3.75% to 4%
12/14/22
+0.50%
4.25% to 4.50%
So, why is the Fed exploring a slower pace of increases? To answer that, imagine heating a mug of hot cocoa. You put the mug in the microwave for about a minute, only to find your drink is nowhere near warm enough. So, what do you do? One approach would be to heat it for another minute – there’s no chance your cocoa won’t be hot after that. But there is a chance your drink will end up curdling…or maybe even exploding all over the inside of your microwave!
Instead, you’d probably continue heating your cocoa in ten-second bursts, checking the temperature after each increment. It’s a bit more work, but it ensures your cocoa ends up exactly how you want it to be.
That’s what the Fed is doing now by dialing back the pace of their rate hikes. They’re giving themselves a chance to see what effect each “ten-second burst” has on both prices and the overall economy. The reason they feel comfortable with doing that now is that the rate of inflation is slowing, too.
According to the latest data, inflation slid from 7.7% to 7.1% in November.3 That’s a positive sign – especially as it’s a sharper decrease than economists expected. And it’s why the Fed feels a bit more comfortable with hiking interest rates at a slower pace.
So, does that mean all these interest rate spikes are working? The answer is yes – to an extent.
You see, when the Fed raises rates, what they’re trying to do is decrease economic activity. By making it costlier to borrow money, the Fed wants to decrease how much consumers spend money. It seems counterintuitive – after all, we’re used to the idea of economic growth being a good thing! As spending goes down, companies have no choice but to lower their prices to attract new business. Lower prices equal lower inflation.
The issue right now is that while prices are starting to go down, they are not going down evenly. Furthermore, not all these decreases can be directly tied to interest rates. For example, there’s an obvious link between interest rates and home prices. So, it should come as no surprise that the housing market has been falling for months. Auto loans are pricier too, which is why used-car prices are starting to fall.
But other areas of the economy aren’t quite so tied to interest rates. For example, two of the major sources of inflation this year have been food and fuel. Both have started to level off, but this is largely due to post-pandemic supply chains finally getting sorted out and the world adjusting to geopolitical issues like the war in Ukraine. As far as inflation is concerned, the effect is the same – but the cause isn’t always tied to interest rates.
The reason that matters is that in other areas, higher rates are not having the effect you might expect. For example, take the labor market. Oftentimes, when rates go up, businesses cut back on hiring or delay giving raises to their employees. So far, neither is happening. Unemployment is still near a 50-year low. Wages continue to grow at an unusually fast rate. Hiring is beginning to slow, but nowhere near what the Fed likely expected.
The result is that consumer spending continues to motor along. With most Americans having jobs and extra savings, families continue to spend. That’s the main reason we haven’t entered a recession yet. But it’s also one of the reasons that prices – although cooling! – continue to run stubbornly hot.
It also means that, while the Fed may be slowing the pace of their rate hikes, there are no plans to stop anytime soon.
Looking Ahead
On December 14, the Fed also unveiled their projections for 2023. That’s important, because these projections reveal the Fed’s intentions for the coming year, allowing us to plan ahead.
Due to all the factors, we’ve just gone over, the Fed projects they will continue to raise rates throughout the New Year. Most Fed officials predict rates will rise to 5.1% by the end of 2023 (up from 4.25% now), but that’s just the median.4 Five officials thought 5.25% was more likely, and two went as high as 5.6%. That’s significantly higher than what the Fed predicted just a few months ago when they projected rates rising to around 4.6% for 2023.
The last time interest rates were over 5% was all the way back in 2006.2 As you can imagine, this would have a profound effect on the economy, and the Fed knows it. In fact, the Fed forecasts that unemployment will rise to 4.6% next year – up from 3.7% right now – and remain near that level through 2024.4 As a result, they also project a meager 0.5% in economic growth for 2023.4 That’s not technically a recession, but it will probably still feel like one.
Now, it’s important to remember that this is a forecast. Anyone who watches the weather knows how often forecasts change. Inflation could cool faster than anticipated, nixing the need for such high interest rates. Alternatively, inflation could continue being stubborn. Or, the Fed might raise rates exactly how they predict, only to find the economy remaining surprisingly resilient.
What it means for the markets – and for us
In 2022, there has been a spike in market volatility before and after every hike. Don’t be surprised if that continues in 2023. At the same time, investors have been playing a game of chicken with the Fed all year long, seeming to bet that the central bank won’t keep raising interest rates as high as they say, or for as long as they say. This balancing act of inflation slowly cooling off, and the economy only gradually slowing down, may be the best thing that could happen to the markets. Either way, however, we need to be mentally, emotionally, and financially prepared for more volatility in 2023.
The good news is that we already are! While dealing with volatility is never fun, it’s important to remember that our investment strategy already accounts for this. We expect there to be times when we need to hit “Pause” on our journey and have factored those times into our plans accordingly. The most important thing now is that we keep focusing on our mug of cocoa – tasting, and testing as we go, looking for opportunities when we can, and holding course when we need to.
Our advice is to focus on the season. Our team will take care of the rest! So, from all of us here at Minich MacGregor Wealth Management, we wish you Happy Holidays! Please let us know if there is ever anything we can do for you. May your cocoa always be the right temperature, and your gifts never be socks.
On a scale of 1 to 10, how hopeful are you feeling about 2023?
We’ve seen A TON of headlines talking about recessions, layoffs, and market fears over the past few weeks. And what we should be doing to stave off the worst.
It’s prudent to plan ahead and reef the sails before the storm strikes.
But are we going overboard? Are we being TOO negative?
It’s a normal human reaction to try to foresee and prepare for the worst.
But we think that can sometimes lead us to act as though the worst-case scenario is a foregone conclusion.
What if we’re not making enough room for good things to happen?
While the risk of a recession next year is real, it’s not a given — it’s a prediction.
The Wall Street Journal survey of economists puts the risk of a recession within 12 months at 63%.1
On the other hand, Goldman Sachs puts the probability of a 2023 recession at just 35%.2
No one knows what will happen for certain but it doesn’t look like a recession is just around the corner.
Recent layoffs are getting big headlines, but they aren’t widespread.3
In fact, there’s still a chance that we could avoid a recession or experience only a mild downturn.
Especially if inflation has truly peaked. (Fingers crossed!)
There are likely to be stormy waters ahead, especially for employees affected by layoffs, but as we enter the final weeks of the year, I want to highlight some signs of hope:
Hopeful sign #1: The latest data shows that the U.S. economy grew nearly 2.9% in the third quarter.4
Hopeful sign #2: Economists think the economy will grow again in the fourth quarter as well.
Hopeful sign #3: The Fed might slow down the pace of interest rate hikes soon.5
It’s true, we’re still in challenging conditions as we approach 2023.
More volatility is very likely in store for us.
But let’s make room for optimism and positivity.
Good things are in store as well.
Before we go, we wanted to highlight a few more bits of good news from 2022:
We learned that U.S. child poverty plummeted 80% between 1993 and 2021.6
Scientists discovered a way to help identify babies at risk for sudden infant death syndrome.7
Voters elected the first Gen Z member of Congress.8
A record number of sea turtles laid nests on the Georgia coast.9
What other wonderful things happened this year? What good news do you have to share with us?
Earlier this year, we started a series of posts called “Questions You Were Afraid to Ask.” We look at a common question that many investors have but feel uncomfortable asking. Because when it comes to investing, the only bad question is the one left unasked!
So far, we’ve covered a variety of topics, including:
How the Dow Jones, S&P 500, and NASDAQ indices work and which companies they include.
How the values of these indices are calculated.
How stocks work, and how they differ from bonds.
How investment funds work, including the differences between passive and active funds.
The pros and cons of mutual funds, exchange-traded funds, and hedge funds.
As you can see, when it comes to investing, there’s a lot to know, a lot to consider, and a lot to choose from. And while choice is always a good thing, many investors often come to us with their heads spinning because they’re not sure where to start, what to do, or which option to choose. They all come with some variation of the same question. The question we’re going to answer right now.
Questions You Were Afraid to Ask #6: How do I know which investment options are right for me?
When it comes to this question, we have good news and bad news.
The bad news is that there is no one-size-fits-all answer.
The good news is that there is no one-size-fits-all answer.
Yes, you read that right.
To illustrate what we mean, think about your clothing for a moment. Do you buy one-size-fits-all attire? Of course not – and there’s a reason for that. “One-size-fits-all” wouldn’t look very good. It wouldn’t feel very good. And it simply wouldn’t work for every person and every lifestyle.
In life, we have a variety of different clothes we can choose from. We make those choices based on several factors. Climate: pants or shorts. Employment: jeans or slacks. Occasion: a day at the beach or a day at a wedding. Personality: colorful vs dark, brazen vs muted. Figure: from extra-small to extra-large. You choose your clothes – and your style– based on what’s right for you. Based on your wants, your needs, your nature. Investing, believe it or not, is much the same. There is no one-size-fits-all. No single “best” option. Only the best for you, based on your wants, your needs, your nature.
This might seem like a no-brainer, but it’s critical all the same. That’s because, as an investor, you will often hear the media say otherwise. You will hear people claim that the Dow is more important than the S&P (or vice versa). That stocks are better than bonds, or bonds are safer than stocks. That passive is better than active (or vice versa), or that ETFs are always better than mutual funds (or vice versa).
As we’ve seen, the truth just isn’t that simple.
In these posts, we’ve answered six questions many investors are afraid to ask. Now, we have six more for you to consider. Six questions you must not be afraid to ask. Questions only you can answer.
Those questions are as follows: Who, What, When, Where, Why, and How.
Who am I? Are you cautious by nature or a risk-taker? Are you a family-oriented person, or more of a lone wolf? An adventurer or a caretaker? Someone with a few simple wants, or big, bold dreams? Or – as many people tend to be – are you a mixture of all these things?
What kind of lifestyle do I want? Simple or extravagant? Always trying new things, or staying in your comfort zone? One focused on work and personal accomplishment, or one focused on family and community? Or again – and I can’t stress this too much – a mixture of these things, depending on what stage you’re at in life?
When will I most need money? Do you need it soon because you’re buying a new home or starting a new business? Or do you need it later when you’re about to retire?
Where do I see myself in ten years? Or twenty? Life is all about change and growth. That means you need to ensure you’re investing for long-term growth to reach your long-term goals.
Why do I need to invest? To help send your kids to college? To retire? To see the world? To give to charitable causes? To feel like you always have a safety net?
How will I pay for retirement? This is key. Because, regardless of your other goals, there’s probably going to come a time when you want to stop working. But you can’t just pick a day to not show up at work. Retirement creates a massive lifestyle change, one that will be quite upsetting to your finances if you don’t prepare for it.
It’s these questions that should determine the right investment options for you. The types of assets you invest in. How much risk you take on. Whether your portfolio is simple or complex. Active versus passive. You get the idea.
So, here’s our suggestion: Take some time to think about these questions. Then, communicate your answers with a professional you trust. Together the two of you can create an investment plan that’s as specific to you as the clothes you wear. A plan designed to get you where you want to be. We hope you’ve enjoyed learning a bit more about how investing works. We hope we’ve been able to answer some questions you may have pondered over the years. Most of all, we hope you can use this information as a springboard to ask more questions down the road. After all…
When it comes to investing, the only bad question is the one left unasked!
