While we embark on the most festive time of the year, I wanted to put a twist on the classic “Twelve Days of Christmas” Christmas carol. While many of our clients are in the wealth preservation/distribution phase – the first portion of the newsletter will probably be most beneficial to those still accumulating assets and wealth. Below are my twelve behaviors for wealth accumulation (nothing groundbreaking, and by no means all inclusive):
- Establish a budget – knowing how much money is coming in vs. going out, lays the foundation for wealth accumulation
- Live within your means – this goes hand in hand with #1. Once you know your monthly cashflow picture, you can adjust accordingly. If you keep your expenses lower than your income, savings should accumulate. Having savings allows you to invest.
- Eliminate credit card debt - some of the highest interest rates we face are those of credit cards. The importance of paying off your balance each month can’t be overstated. Paying interest can be debilitating.
- Investing in yourself – health is wealth. Although it seems obvious, this is one that I struggle with. I started working out weekly back in September of 2022. It was never something that I was passionate about, nor wanted to devote time to. However, it eventually became part of my routine, and something I look forward to. While exercise is just one part of the puzzle, eating healthy has, and continues to be, the bigger challenge for me. 😊
- Having a positive mindset – life happens, and it never goes as planned. Positivity enables productivity (Easier said than done)
- Surround yourself with people smarter than you – being around people who know more than you increases your human capital.
- Accountability – this is a guiding principle of my life – not just wealth accumulation. Actions speak louder than words. When it comes to wealth accumulation, starting with a deferral rate into my 401(k) that I am comfortable with, never going below it, and gradually increasing it over time is the best way, in my opinion, to hold myself accountable.
- Simple is better – while index funds lack the appeal of the hottest investment fads (i.e. cryptocurrencies, private credit, etc.) – one of the most reliable ways to accumulate wealth is buying broad-based, inexpensive index funds.
- Tax-efficiency – no one likes paying taxes, especially taxes that could have been avoided. Asset location (placing tax-efficient investments in taxable accounts/tax-inefficient investments in qualified accounts) is prudent. Additionally, for someone in the early innings of their career (and probably lower earning years), maximizing the use of Roth accounts is paramount.
- Time IN the market – the average bull market lasts between 3-4 times as long as the average bear market. If you are a long-term investor, time IN the market is much more important than timing the market.
- Discipline – consistently saving and investing over the long-term will pay dividends down the road.
- Periodically revisit #1- #11. If you find yourself getting off-track, hopefully it will steer you back on the right path.
Building off Last Week’s Newsletter –Strategists See Moderate Gains for 2025 – Why Tempering Expectations is Warranted
The S&P 500 is up 28% year-to date, following a 24% return for 2023. If 2024’s performance stays above 20%, it would only be the third time in the last century (when the Dow Jones was the bellwether for the US economy) of back-to-back 20%+ years - what an incredible run it has been!! However, now would be a great time to remind investors that these last two years have been exceptional, not normal. Dating back to the inception of the S&P 500 in 1957, the average annual return of the S&P 500 has been around 10% (nominal). While nothing to balk at, the returns seen over the last two years can’t be expected to continue over the next several. “Reversion to the mean” is a common phrase used in investing parlance – meaning returns will eventually work their way back to the long-term average. This phrase aligns with many strategists’ predictions for where they believe the S&P 500 will finish in 2025. The average forecast from 14 market strategists from some of the most recognized investment management companies is 6,700 – representing a 10.5% return from current levels.
Government Efficiency?
Synonyms used for “efficiency” include: productivity, cost-effectiveness, order, competency etc. All are words I view in a positive light, as I would assume most people do. Whether it is in our personal or professional life, being efficient is a powerful thing. When it comes to our federal government, regardless of political ideology, efficiency is probably not the first thing that comes to mind. I keep hearing of a new entity that will be established under President-elect Trump’s administration - Department of Government Efficiency (DOGE) - which sounds like an oxymoron. I wanted to take a brief look at the objectives of DOGE, and if anything that has been touted could actually come to fruition:
- This is a non-governmental entity and lacks statutory authority – meaning it can’t actually implement anything it proposes
- Will operate like a commission or advisory board
- Will work closely with the Office of Management and Budget
- Objectives are to cut government spending, deregulate and reduce headcount at certain government agencies
- Whether one agrees with the objectives or not, below is a graph illustrating the amount of interest our federal government pays on our outstanding debt – something has to give…
This is not a one-sided problem, however. Trump campaigned on eliminating taxes on tips, making the Tax Cuts and Jobs Act provisions permanent, reducing the corporate tax rate even further, etc. If all of the above occur, no matter how strong the economy, revenue will decline significantly. It will be interesting to how this plays out during President-elect Trump’s second term.
Quick Hits
- 50 Best Christmas Desserts to Make Your Holiday Merry – Did I mention healthy eating is a problem for me?
- 25 Best Christmas Towns in the U.S. – Maine and New Hampshire both make an appearance.
- If College Football Playoff actually wants to reward top teams, it should ditch byes for conference champions - CBSSports.com – Changes will be coming
Quote(s): “The Joy of brightening other lives, bearing each others’ burdens, easing each other’s loads and supplanting empty hearts and lives with generous gifts becomes for us the magic of the holidays.” –W. C. Jones
On the lighter side: “You can tell a lot about a person by the way they handle three things: a rainy day, lost luggage and tangled Christmas tree lights.” –Maya Angelou
Thank you for reading RSWA Financial Advisor Insights! We welcome feedback, and please forward this to a friend! Be well, take care, and stay safe!
