Financial Planning

What to Do If You Are Off Track on Your Goals

Don’t worry if your financial goals look out of reach now based on what you’ve saved. There are ways to adjust course that are easier than you may think.

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.

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  • 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.

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  • 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.

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  • 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.

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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.

 

 

Footnotes:

 

1Insider: 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.

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