As we enter the year's final quarter, we will discuss some year-end planning tips, a recent example of a topic in the media that can distract long-term investors, and a delicious company spotlight!
Year-End Financial Planning Insights
I'm not quite sure how we are already 3/4 of the way through 2023, but here we are, so it's time to look at ways to wrap up the year strong on a financial note and set yourself up for a successful 2024.
Reflect on 2023 Goals
Reflecting on the financial goals set at the year's onset can offer rich insights. Have you been cruising smoothly towards your targets, or did you hit some turbulence along the way? If your New Year resolutions fizzled out shortly after the fireworks, delve into the why and how to adjust the sails.
A common pitfall is setting vague objectives like saving $1000 without mapping out the actionable steps towards achieving this. It mirrors a weight loss goal sans a defined workout and dietary regimen. Emphasizing the process rather than the endpoint often unveils the path to success. For those seeking to refine their habit-building prowess, "Atomic Habits" by James Clear is a compelling read.
Have you/Are you on track to achieve your 2023 financial goals?
Yes!
Some, but not all of my goals.
No.
Tax Planning
Although Tax Day is over six months away, there are steps you can take now to ensure you are optimizing your tax bill come April. Strategies such as putting money into retirement accounts, tax-loss harvesting, tax-gain harvesting, or making charitable contributions are all ways to help set you up for success when tax time rolls around again.
Another important tax item is ensuring you're withholding an appropriate amount in taxes from your paycheck. Using the Tax Withholding Estimator, you can ensure you withhold the correct amount in taxes from each paycheck. If you aren't withholding enough, you could face an unexpected tax bill in April; conversely, if you withhold too much in taxes, you might be excited about getting a tax refund. However, if you receive a refund, it means you gave an interest-free loan to the government - so while a refund itself is fine, too large of a refund could have been better off in a high-yield savings account or another alternative.
Tax Withholding Estimator: https://apps.irs.gov/app/tax-withholding-estimator
Consider meeting with a Certified Financial Planner® (CFP®) or other financial professional to review your financial plan. A financial planner can help you set, monitor, and review your financial goals with you.
Keep Your Eye on the Ball: Recent Media Distractions
Today, we are constantly bombarded with news of all kinds, whether we like it or not, and almost regardless of how much or little we intend to allow it into our lives. In the documentary The Social Dilemma, viewers are asked, “Do you check your smartphone before you pee in the morning or while you are peeing?" implying these are the only two choices. We are more connected than ever before, and additional challenges for actual long-term investors come with that. The media is constantly looking for headlines that incite fear or uncertainty, and being always connected to this type of "news" can sometimes make it challenging to stick to your long-term plans.
Two recent topics are excellent examples: the "impending government shutdown," which has already come to a temporary resolution with a 45-day funding bill, and the UAW strike. As recently as Friday, September 29th, a Forbes headline read, "Government Shutdown Imminent As House Can’t Pass Short-Term Government Funding Bill," while an NBC article stated, "A short government shutdown wouldn’t crash the economy, but a long one holds risks." Crash the economy? Sounds like scary stuff, right?
If you didn't know any different, you might think this was the first time our government was close to a shutdown, and you are not sure what that may mean for our country and economy; however, not including the numerous close-calls, our government has actually shut down 14 times since 1980, with most being resolved in less than a week.
Suppose someone had told you in May 1980, when the first government shutdown took place, that there would be 13 more government shutdowns amongst many other near shutdowns and numerous other crazy events such as 9/11, The Great Financial Crisis, etc. in the coming 53 years. Would you have wanted to invest in the U.S. economy? Or would you have waited for a time when things settled down a bit? If you decided to invest $1,000 in the S&P 500 in May of 1980 and reinvested dividends, you would have had over $121,000 at the end of August 2023. That's a total return of over 121x in just over 43 years or an 11.7% annual return. This is despite temporary declines of over 20% on seven different occasions, including a 27% decline in November 1980, just months after you decided to make your investment, and declines of 49% and 57% from 2000-2002 and 2007-2009, respectively.
Even taking a much shorter-term look, if you invested $1,000 in the S&P 500 before the last government shutdown in December 2018, you would have had over $1,800 by the end of August 2023. An 80%+ return in less than five years, despite the fastest bear market in history (March 2020) and another 20%+ drawdown in 2022. How's your savings account doing?
This is the type of information that media, especially financial media, neglects to put on the headlines. Why? Because it isn't scary, it doesn't elicit an emotional response to drive clicks and, in turn, advertising dollars. However, it is the news that should be relevant to you and a reminder of what the power of long-term thinking can do for you. By keeping perspective during times of chaos and uncertainty, you will succeed!
There will always be today's crisis; once that crisis is resolved, the media will move on to the next one. So on and so forth. The question is, will you fall prey to their short-term distractions, or will you keep your eye on the ball and stick with your plan despite the noise in the crowd?
Company Spotlight: The Hershey Company
With Halloween around the corner, let's take a look at an iconic American company, The Hershey Company. In 1894, Milton Hershey incorporated the Lancaster Carmel Company with the Hershey Chocolate Company as a subsidiary. In the 129 years since, Hershey's has become the #1 player in the chocolate industry in the United States, and I would guess 129 years from now, they will likely be in the same position.
Hershey's the business has been just as good, if not better, than the delicious chocolate treats they make. In good economic times or bad economic times, people still enjoy chocolate frequently, and I don't believe this is likely to change anytime soon. This makes Hershey's business very consistent and steady.
Looking at a 53-year chart of Hershey's stock (HSY), we can see that, for the most part, the stock has moved up and to the right in mostly a straight line. Although at a glance, it seems like being invested in a company like Hershey's would be an easy ride, a closer look tells us that we would have had to endure three separate drawdowns of over 40%, including one of over 60% from the early to mid-1970s. Despite this, the stock has risen from around a split-adjusted $0.20 a share at the start 1970 to over $200 a share today.
While the cost of a chocolate bar may be a cheap luxury, the numbers can add up quickly when you sell a lot of chocolate. In 2022, Hershey's had revenue of over $10 billion - that's a LOT of chocolate!
Hershey's (HSY) Historical Returns (as of 10/1/2023):
1-Year: -10%
5-Year: 91%
10-Year: 116%
20-Year: 450%
Unlock Your Financial Potential with Eighth Wonder Investments
Thank you for joining us in this edition of "The Long-Term Investor." As you can see, there are a lot of distractions in the financial news media, as well as in the way the market can behave at times.
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As a reader of "The Long-Term Investor," you already appreciate the value of in-depth, actionable financial insights. Now, take the next step in your financial journey by consulting with professionals who can transform those insights into a tailored plan just for you.
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Disclaimer: All information provided in this newsletter, including references to past performance of investment strategies, market segments, or individual securities, is purely for informational purposes and should not be construed as investment advice, nor does it constitute an offer or solicitation of an offer to buy or sell any securities or adopt any investment strategy. It is important to note that past performance does not indicate future results. Investments can go up and down in value, and you could lose money or not gain as much as expected. Every investment has its own set of risks which could adversely affect results. Before making any financial decisions or investments, readers should consult with a qualified financial advisor to assess the appropriateness based on individual objectives, financial situation, or needs.