Aged couple looking hopeful towards their financial future.

What does my Financial Future look like?

A few years ago, we visited an 83-year-old client at his home, only to find him in his backyard planting a new tree. Our eyes saw a small stick with a few branches. But he saw a future shade tree that would give welcome relief from the summer sun.

Who doesn’t admire someone who lives with the future in mind?

We love meeting with clients who are excited about the future—whether they are 35, 65 or even 85 and beyond! For some, the future represents a “bucket list” of experiences and time to accomplish those goals. For others in their 80s and 90s, their enthusiasm for the future may be the joy of watching loved ones grow up and to celebrate their successes.

Without a doubt, your future is brighter when you know you won’t outlive your money. Part of the financial planning process is to assess the present and create a game plan to accomplish your goals. The discipline to invest and save money is easier when you have a vision of what you want your future to be.

Here are FIVE PRINCIPLES that will help you secure your financial future:

1. Plan for a long life.

For a 65-year-old couple, there is a nearly 50% chance that one of them will live to age 90 or beyond. If you are already 65, in good health, and have a family history of longevity, you should plan to live to age 95 or even 100. One of the greatest financial challenges in today’s society is having enough money for longer life spans. A 70-year-old female client recently told us, “My health is declining. I want to know if I can afford the care that I may need going forward. That is my biggest worry.”

2. Investing is one of the best protection against inflation.

Growing your money is the best way to secure your financial future. Bloomberg conducted a study of the past decade (2012-2021) to look at how asset classes performed. Equities beat out real estate, bonds, cash, and commodities. A 20-year study by Ibbotson showed the same result. Over time, equities beat out every other asset class and was the best hedge against inflation. In fact, records going back nearly a century to 1926 show that equities performed best over time (and that includes the 1929 stock market “crash” and subsequent depression).

3. Volatility is normal. Don’t let it derail you.

Last year there was a lot of volatility in the stock market as the Fed began raising rates and shrinking its balance sheet. We expect that volatility to continue until the Fed pauses. The important thing is to recognize that no scenario lasts forever. A portfolio that includes equities must have a risk/reward balance suited to your situation. You can’t get the reward without accepting some risk, and that means dealing with volatility during various cycles of the market.

4. Cash is a “safe haven,” but not a long-term solution.

Cash should be considered a temporary holding position—but remember that it will not keep pace with inflation or accomplish your long-term objectives. If you have excess cash in a checking or savings account, let’s put it to work! In this higher interest rate environment, we are utilizing money market securities, short-term bonds, and treasury notes as an alternative to money just sitting in a cash position.

5. Diversification works.

Over the last 15 years, we have witnessed natural disasters, geopolitical conflicts, a global pandemic, and two major market downturns. Yet in spite of these difficulties, cash performed poorly. A well-diversified portfolio of equities, bonds, and other asset classes returned roughly 6% per year over this time period*.

The key to having a bright financial future is to stick to your plan. Sure, you may need to make adjustments and you may have unexpected detours and roadblocks along the way, but that doesn’t mean the journey isn’t worth the effort.

At Johnson Financial Advisors, we want to support you in navigating these important financial decisions with confidence and clarity. Feel free to reach out to us if we haven’t talked recently about whether you are on track with your game plan.

* Source: JP Morgan: Market Insights 2022