When saving for a major financial goal – planning a big wedding, buying a home, paying for a child’s college or even retiring - the most important thing is to start. Even if you’re only able to set aside a small amount, if you stay consistent in your saving and invest it in a way that supports achieving your goals, that sum may grow over time. The more you add, the more quickly the account total may accumulate as investment gains potentially compound over the years.
You can check in periodically to see if you’re on track and the amount you’re saving and investing is on pace to equal the money you’ll need when the time comes (with some margin for error). But what if you’re off track? The earlier you become aware that you are off track, the more time you have to make the necessary adjustments to help you get back on track.
Time Is Your Friend
The good news: As long as you have time–at least five years for lesser goals, more time for the bigger ones, like retirement– you can adjust. Stock market volatility may erode some of your progress. However, since markets have risen over time historically, focusing on financial goals and investing for long-term buy and hold can help even out the ups and downs.1
Volatility is an unfortunate feature of getting access to that growth. But buying and selling stocks in an effort to catch upswings or avoid downturns is generally a foolhardy approach. That’s why we advise investors to take full advantage of their greatest asset–the naturally occurring multi-decade time horizon of many of their goals–to get invested and stay invested–not to try to time the market.
Instead, here are the four basic ways you can try to get back on track:
- Stretch out your time horizon: Planning a trip to Spain to go running with the bulls? Maybe you can put off your trip of a lifetime for a few extra years. That will give you more time to save, and for your earnings to accumulate. It can make a big difference.
- Downsize your goal: Buying a home? If you’ve missed your target, you may not be able to get everything you’d hoped for in a new house, but that doesn’t take you out of the market entirely. You may find you can be quite happy with the home you can afford, even with your reduced budget.
- Increase your investments in equities: You want to identify and implement a strategy for investing that best supports meeting your goals, while balancing your tolerance for market volatility. Sometimes this includes investing more of your portfolio in stocks. Stocks are more volatile than bonds and cash, but given enough time, their returns are also potentially higher, sometimes significantly so. When investors increase their allocation to stocks in their portfolio, they take on more downside risk (risk of a portfolio decline during market corrections), but if they have a long enough horizon, they also increase their potential ability to achieve their goals. I recommend making a move in this direction only if you have a long time horizon, and are able to tolerate seeing somewhat sharper losses in your portfolio without panicking and selling, which can make matters worse.
- Save more each year – or better yet, each month. This may seem like the most difficult of the four options, but if you can put aside even a little bit extra per paycheck, it can put you on a path to achieving your goal.
Don’t view these options as a menu where you pick one and are done. Instead, if you’re off track, see if you can do some of each. You will find that the size of the adjustment you have to make for any one option, like increasing savings, will be much less if you make a few adjustments rather than trying to simply pull that one lever. How much of each option you choose will depend on your own individual circumstances.
No matter what your strategy is to get back on track with your goals, consider tracking your progress with Morgan Stanley’s Goals Planning System (GPS) Progress to Goals Reporting. This innovative platform links your financial information to your top concerns and priorities.
A Skiing Analogy
As a recreational skier, I often think of the process of setting and refining goals like shopping for a pair of skis. You can choose short skis, which are more maneuverable, curved skis, which are great at sharp turns, or broader skis that float nicely on loose snow. Each has their disadvantages in certain kinds of terrain but require making trade-offs for others. For most people, the most desirable solution is one that strikes a balance between options. In skiing, these are called “all-mountain” skis. I suggest an all-mountain parallel in planning for your goals.
Here’s an example: Imagine reaching age 55 and realizing you are off track to be able to retire at age 65. You could get back on track by postponing retirement to 67 (but that’s two more years of work) or by increasing your equity allocation to 70% from 30% (but that’s a lot of risk for someone planning to retire in 10 years). Better yet, you could save $500 more per year ($41.67 a month), lift your allocation to stocks to 50% and plan to retire at 66.
That would be the all-mountain version of a retirement fix. It’s a package of compromises that aims to close the retirement funding gap by smaller, potentially more palatable changes across a range of levers. My recommendation is that investors who are off-track on their goals consider a similar package of moves and stick with them. It takes fortitude, but as you reach the long-term financial goals you’ve set for yourself, you’ll find it well worth the effort.
Connect with a Morgan Stanley Financial Advisor to help you create and stick to a plan to help you reach your financial goals.
1 Insider: Personal Finance - https://www.businessinsider.com/personal-finance/average-stock-market-return
Risk Considerations:
Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.
Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater credit risk and price volatility in the secondary market. Investors should be careful to consider these risks alongside their individual circumstances, objectives and risk tolerance before investing in high-yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio.
Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.
Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.
Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision.
The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment.
The indices selected by Morgan Stanley Wealth Management to measure performance are representative of broad asset classes. Morgan Stanley Wealth Management retains the right to change representative indices at any time.
Disclosures
The author(s) (if any authors are noted) principally responsible for the preparation of this material receive compensation based upon various factors, including quality and accuracy of their work, firm revenues (including trading and capital markets revenues), client feedback and competitive factors. Morgan Stanley Wealth Management is involved in many businesses that may relate to companies, securities or instruments mentioned in this material.
This material may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm has not reviewed the linked site. Equally, except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of Morgan Stanley Wealth Management) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through the material or the website of the firm shall be at your own risk and we shall have no liability arising out of, or in connection with, any such referenced website. Morgan Stanley Wealth Management is a business of Morgan Stanley Smith Barney LLC.
Morgan Stanley Smith Barney LLC is not implying an affiliation, sponsorship, endorsement with/of the third party or that any monitoring is being done by Morgan Stanley Smith Barney LLC (“Morgan Stanley”) of any information contained within the website. Morgan Stanley is not responsible for the information contained on the third-party website or the use of or inability to use such site. Nor do we guarantee its accuracy or completeness.
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. Any such offer would be made only after a prospective investor had completed its own independent investigation of the securities, instruments or transactions, and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the accuracy or completeness of this material. Morgan Stanley Wealth Management has no obligation to provide updated information on the securities/instruments mentioned herein.
The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Morgan Stanley Wealth Management recommends that investors independently evaluate specific investments and strategies, and encourages investors to seek the advice of a financial advisor. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies and other issuers or other factors. Estimates of future performance are based on assumptions that may not be realized. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Morgan Stanley Wealth Management does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein.
This material should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. This information is not intended to, and should not, form a primary basis for any investment decisions that you may make. Morgan Stanley Wealth Management is not acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended or under section 4975 of the Internal Revenue Code of 1986 as amended in providing this material.
The Morgan Stanley Goals-Planning System (GPS) includes a brokerage investment analysis tool. While securities held in a client’s investment advisory accounts may be included in the analysis, the reports generated from the GPS Platform are not financial plans nor constitute a financial planning service. A financial plan generally seeks to address a wide spectrum of a client’s long-term financial needs, and can include recommendations about insurance, savings, tax and estate planning, and investments, taking into consideration the client’s goals and situation, including anticipated retirement or other employee benefits. Morgan Stanley Smith Barney LLC (“Morgan Stanley”) will only prepare a financial plan at a client’s specific request using Morgan Stanley approved financial planning software.
Investing in financial instruments carries with it the possibility of losses and that a focus on above-market returns exposes the portfolio to above-average risk. Performance aspirations are not guaranteed and are subject to market conditions. High volatility investments may be subject to sudden and large falls in value, and there could be a large loss on realization which could be equal to the amount invested.
IMPORTANT: The projections or other information provided by the Morgan Stanley Goals Planning System regarding the likelihood of various investment outcomes (including any assumed rates of return and income) are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Morgan Stanley does not represent or guarantee that the projected returns or income will or can be attained.
NOT ALL PRODUCTS AND SERVICES ARE AVAILABLE IN ALL JURISDICTIONS OR COUNTRIES.
Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation and to learn about any potential tax or other implications that may result from acting on a particular recommendation.
© 2023 Morgan Stanley Smith Barney LLC. Member SIPC.
CRC # 5768984 (07/2023)