Setting the Stage: Market Outlook and Tips for Savers in the New Year
As we head further into 2024, you've likely started thinking about your financial goals for the year. Perhaps you're saving for a big family vacation in the summer. Maybe you're hoping to contribute more to your retirement account or your children's college fund. You could even be readying for the end of your career or moving into a new phase of your retirement journey.
Whatever your goals, we know many of you try to keep an eye on economic and market conditions while planning for the near- and long-term future.
It was a mostly positive stretch for the economy and investors in 2023, but there is no lack of uncertainties to start 2024. With this in mind, let's take stock of the latest market trends and consider a few practical steps that may help your financial path this year.
What's Going on in the Markets Right Now?
The S&P 500 Index of U.S. stocks returned 26.3% in 2023, while the Bloomberg Aggregate Bond Index gained about 5.5% on the year. At the time of this writing, fourth quarter estimates for 2023 put U.S. gross domestic product (GDP) expansion at approximately 2.5%, an impressive result for a year when many were calling for a recession. Safe to say very few analysts predicted these strong market and GDP numbers at this time last year!
The challenges of market forecasting caution us against making direct predictions about 2024. What we can do is consider current market and economic indicators and how investors have acted under similar conditions historically.
The U.S. Federal Reserve (Fed) aggressively raised interest rates in 2022 and 2023 to combat inflation. The Fed is likely done raising rates for now and is expected to start cutting rates as early as this March.
High-yield savings accounts, CDs and short-term bonds are now offering much better returns than they have in recent memory, while carrying minimal risk. This hasn't gone unnoticed. There's now about $5.7 trillion invested in money markets funds (which invest in low-risk assets like CDs), up from $3.5 trillion in 2020.
At the same time, though, the end of interest rate-hiking cycles has historically been a good time for investors with long-term horizons to invest in stocks and bonds, according to analysis done by Capital Group, one of Wespath's external asset managers. In the last four cycles, the average annual return of stocks and bonds have outperformed 3-month U.S. T-bills (Treasury bills) one year after the final Fed hike. Capital Group chose U.S. T-bills to be representative of short-term investments like money market funds.
Long-term, patient investors should consider this history when they consider how to save and invest in 2024.
How Should You Prepare for 2024?
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Consider Starting, or Adding to, an Emergency Savings Fund
Just as it is difficult to predict what will happen in the markets in the coming year, it also can be hard to anticipate everything that will happen in your personal finances this year. To manage unexpected medical bills, car repairs, home repairs and the like, it helps to have an emergency fund—and save it for actual emergencies."
Buying a new set of tires for a car is not an emergency," Mark Cooke said in a video for Saving Grace, a money management program for clergy and congregations that aligns with Wesleyan values. Cooke is the president of a wealth management firm in Gainesville, Virginia, and a former associate pastor at churches in West Virginia and Virginia. "That is something you know is going to happen. An emergency is more like losing your job, something that is unexpected. And to have that (emergency fund) can really lower your anxiety."
EY Financial Planning Services recommends setting aside enough money to cover at least three to six months of basic living expenses. Cooke stressed it can take time to build to that level. Instead of being discouraged by that fact, it is a reminder to be patient and give yourself grace. EY also notes that every little bit helps, so save what you can when you can for emergencies.
If you want to invest your emergency funds, it's prudent to take a conservative approach and consider a CD or money market account. When an unforeseen event arises and you need to tap into your emergency fund, you don't want to have less money than anticipated due to a market downturn. If you are able to save and invest for other purposes, there may be better places to seek opportunities in stocks and bonds.
Talk to an Expert
If you aren't sure how you can afford an emergency fund or a family vacation, you can turn to an EY financial planner for help with things like budgeting and managing credit card debt. EY services are available at no additional cost1. EY financial planners also can help with setting savings goals, managing investment decisions, making retirement distribution decisions, financing a college education, estate planning and more.
EY financial planners do not sell investment or insurance products, but instead are available to offer confidential, unbiased guidance without any sales pressure to all active participants and surviving spouses with an account balance in Wespath-administered plans. Terminated and retired participants with an account balance of at least $10,000 also are eligible to consult with EY.
To speak with an EY financial planner, just call 1-800-360-2539 on business days between 8:00 a.m. and 7:00 p.m., Central time. There are no forms to fill out and no enrollment steps to complete, no matter how much help you need. You also can visit EY Navigate to access webinars, educational content and much more.
To see just how much EY can help Wespath participants, check out last year's Dimensions story about an EY adviser who helped a New York pastor prepare for retirement.
1 Costs for these services are included in Wespath's operating expenses that are paid for by the funds.
Once You Make Your Plan, Stick to It
Once you have set your investment goals and developed a plan to achieve them, congratulations are in order. Kudos! Hooray!
Now a new challenge awaits. The market will inevitably have its ups and downs as you pursue your goals, and when that happens it is important not to overreact. It is easy for investors to second-guess themselves during periods of short-term volatility and make large shifts in their investment portfolio but, as Wespath Chief Investment Officer Dave Zellner explained during last year's "Live from Wespath" webinar, it's important to ignore those temptations and stay the course.
It may be helpful to remember that throughout history, markets go through ups and downs. That's just one of the reasons for adopting Wespath's approach and having a disciplined and diversified long-term investment strategy.