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A Few Financial New Year’s Resolutions

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This time of year is always busy with new beginnings and new ideas. Resolutions sometimes stick but always give a good chance to think about the future. Here are three ideas for 2022 to help keep your financial house running smoothly.

Watch out for cash

With 2021’s inflation uptick and the low interest rates in bank accounts and CDs, there’s almost never been a worse time to hold cash. A cash position is losing 5-6% of purchasing power every year at this rate, so stashing cash isn’t exactly as defensive as it might seem. While the stock market might seem due for a correction (and in fact, one might be right around the corner), we still believe putting money in a diversified portfolio is the best way to fight inflation and get some real returns (we hope). If you have a specific need for cash soon, like an upcoming down payment or college expenses, it can make sense to hold cash. However, if you’re holding cash just because you’re hesitant about uncertainty with no specific spending needs in the near future, you probably should consider putting that money to work. Our Observatory modeling expects you to be putting money to work in the designated allocation over time, so a large cash position can make the Observatory results much less realistic. 

Be skeptical

I enjoy a good conspiracy theory, but I work hard to differentiate what might be possible from what might be probable. In the last year, I’ve seen an unprecedented number of people make major life decisions (financial and otherwise) on what I might charitably call questionable theories. Keep in mind that the media is a business just like any other, and they’re extremely good at getting us hooked on delivering information that connects with our biases and fears. Increasingly, the selective presentation of actual facts can appeal to our worst instincts. Yes, our national discourse and politics seem unusually polarized right now. However, there are countless things that are going very right in our world. Markets are moving up and down, and politicians come and go, and we believe staying the course in a diversified portfolio is the best way to navigate towards a secure financial future.

Think about spending

Markets are uncertain, and always seem the most uncertain now. In retrospect, everything has always worked out ok in the past, but will this time be different? We spend a lot of time and effort building the best portfolios we can for Telarray investors, but we don’t know the future either. 

As Andy likes to say, if you’re concerned about the future, the one thing you have absolute control over is to spend less. If you’re really concerned about the future, spend a lot less! This has two powerful effects. For one, less spending allows you to more quickly build up savings and investments, which give a margin of safety for future needs. Building a fulfilling life with less spending means, in the worst case, you can be more resilient to a job loss, unexpected health event, or other financial shock. In the best case, it means you can retire or downshift your career sooner than you planned. Investments are just one small part of a successful financial plan. Spending discipline can have a much more dramatic effect on your future than any other factor.

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