This year seemed to have had a decade’s-worth of newsworthy moments, though that’s almost certainly my recency bias talking.
In case you’ve forgotten, 2022 saw Russia’s invasion of Ukraine, runaway inflation leading to consecutive interest rate hikes, the death of British monarch Queen Elizabeth II, the EU gas shortage and glut, the rise of anti-ESG forces, increased tensions in the Taiwan Strait, and Elon Musk’s Twitter takeover. The year also saw the end of the long-running Canada and Denmark Whisky War, but, admittedly, that might be interesting only to me.
What Are Our Top Financial Resolutions for 2023?
With a fresh start in the new year approaching, I asked a bunch of my colleagues across Morningstar about their New Year’s resolutions. Before we get into theirs, however, here’s mine:
In 2023, I resolve to use Morningstar’s director of personal finance Christine Benz’s bucket system to set up my spending for the year. I also plan to re-read most of these great investing books.
Here are my colleagues’ top financial resolutions for the next year:
I Resolve to Sell My Losers
By Sylvester Flood, Senior Editorial Director, Morningstar
My resolution is to sell my losers—stocks that tanked and whose intrinsic value by all measures are unlikely to recover. I have three stocks in my portfolio that qualify. There is also one fund. It hurts to admit one’s mistakes!
I Resolve to Invest for My Child’s Education
By Ian Tam, Director of Investment Research, Morningstar Canada
This year our family had our first child and let me tell you, she is adorable. Though it’s hard to imagine this tiny creature doing anything aside from crying, eating, and pooping, I’ve been told by experienced parents that this next stretch of life is going to go by like a blur.
And so, my resolution for 2023 is to ensure that her education savings account (in Canada known as a Registered Education Savings Plan or RESP) is set up and fully invested. My hope is that over the next eighteen years the continued disciplined contributions coupled with compounding returns will set my little one up comfortably for her foray into post-secondary education. As it will be quite a while until we need to use these proceeds (hence a longer investment time horizon), I’ll have the benefit of being able to invest a bit more aggressively at the outset, then ratchet down risk as we get closer to her going to university. Don’t worry little one, I’ve got you covered.
I Resolve to Get Control of My Discretionary Spending
By Larissa Fernand, Investment Specialist, Morningstar
My highest discretionary spend in 2022 was on takeout and restaurant dining (not my grocery bill). No matter how hard I tried to limit my outgoings, it was futile. So I am going to change the narrative for 2023.
I no longer will fix a budget that permits me to binge on outside food, because I violate it and feel terrible, but still do it again and again. In fact, I won't think in terms of money anymore. I will now look at it in terms of work hours. Here’s my 3-step process for 2023.
Step 1: Calculate my hourly paycheck.
Step 2: Every single week I shall do an audit on my "eating out".
Step 3: Convert the amount of money spent into the equivalent hours of work for that week.
What I hope to achieve: Looking at it from a different lens may help me spend less, and cook more frequently.
I Resolve to Gain Control of Our Spending
By Susan Dziubinski, Investment Specialist, Morningstar
While our triplets were in high school, my husband and I spent money like it was water. New band instruments! Laptops! Another streaming service! College tours! After successfully moving our three kids into their respective colleges this fall (and all the costs that went with it), my husband and I are committed to gaining control over our spending in 2023. Do we really need all these streaming services and cable? What about that landline we never use? And why are we paying professionals to fertilize our lawn multiple times each year and it still looks like that?
I Resolve to Cut Our Fees From My Accounts and Investments
By Andrew Willis, Senior Editor, Morningstar Canada
I’m declaring war on fees. And not just within my portfolio, but around it as well. It was once okay to charge around $5-$10 to make a single stock transaction or around $15-20 for an options contract, but this was before these past few years.
The growing popularity of investing topics on social media, especially Reddit, Youtube and Tiktok, accelerated over the wild trading sessions of the pandemic. There was exponential growth in users on wallstreetbets, for example, and with all the memes and terrible advice also came great discussions that empowered investors by sharing information on reliable exchanges with reasonable fees (like $0-3 for both stocks and options, and preferably no ‘payment for order flow’). A generation of investors and likely generations to come now have higher expectations from their brokers.
Another way I’m cutting down on trading fees is to simply buy fewer individual stocks. Even the expensive exchanges often don’t charge for ETF purchases that you pay management fees on. And I’ll be taking another look at those fund fees, relative to performance – because this was a great year to see if active management pays off.
I Resolve to Find An Undiscovered ‘Star’ Fund Manager
By Ollie Smith, Editor, Morningstar UK
The book I’m reading at the moment was supposed to be research for a separate Morningstar project, but it’s reminded me just how terrible it can be to invest with “star” fund managers. If the dream in financial services is to buy low and sell high, the dream for fund investors is to capture the next star fund manager before they get really big. To that end, if you can stomach the fees, there’s a lot to be investing in high-performing and well-run medium-sized funds. That’s no small ask of course, but in 2023 I think I am going to make it my mission to find at least one. That probably means selling out of my Terry Smith holdings. I was never that comfortable with the Mauritius setup anyway. Sorry Terry.
I Resolve to Define What Sustainable Funds Are
By Lindsey Stewart, Director of Investment Stewardship Research, Morningstar
My resolution for the coming year is to decide once and for all what is, and what isn't, a "sustainable" fund. It's not just me who wants the answer. Given the enormous flows into sustainable funds globally in recent years, it’s a question that’s being asked by investors all over the world.
At present, it’s all too easy for funds to claim to be “green”, “sustainable”, or “socially responsible” without having to do very much to substantiate it, leading to widespread accusations of “greenwashing”. The SEC recently proposed a significant change to the way mutual funds and advisors describe their use of environmental, social, and governance factors in their investments.
I often say that if an asset manager or fund strategy really has a sustainability objective, there should be some evidence of it in its active ownership activities, like its record of engagement and proxy voting at investee companies. This principle is given much greater emphasis in the regulators’ proposals. As some of these consultations point out, perhaps there is no firm definition of “sustainable. But, when it comes to making sure fund investors get what they think they’ve been sold, there’s still plenty to gain from asking the question.
I Resolve to Find a Home That’s Easier to Heat
By Lukas Strobl, Editorial Manager, Morningstar Europe
In 2023, my resolution is to find a home that’s easier to heat. Renting an apartment with six flimsy plastic skylights seemed like a great idea one year ago, when insulation was not a concern-- because the pipes in our basement were happily humming with cheap Siberian gas. It’s now a disquieting hum when you go down there, because the pipes carry a mix of expensive Norwegian gas and a lingering Russian pipeline supply that’s financing a campaign of terror against Ukrainians. I’d rather pay to heat a smaller place with regular, airtight windows. Where will I put all that money I’ll save? With signs pointing to an interest rate peak in 1Q, probably large-cap growth stocks from the bargain bin.
I Resolve to Boost My Child’s Investment Funds
By James Gard, Senior Editor, Morningstar UK
It’s time to look again at boosting my son’s investment funds after a period of relative neglect. For the first 10 years of his life, I was quite diligent at putting money aside for him, but that has waned recently. Why? I’ve had lots of competing claims on my money, such as buying a new house that sucked in money on upgrades and maintenance. And like most people, monthly bills have started to take a bigger chunk of my post-tax income, meaning “saving for the future” keeps getting bumped down the list. In an ideal world, I’d pay into my pension, use all my available allowances and my son’s too (£20,000 and £9,000 currently). But this is a time for pragmatism and self-awareness. I always tend to “dip into” my own savings pot, but UK tax rules stop me from doing this for my son’s nest egg (and it’s his to do what he pleases with when he’s 18). So I’m happy to switch emphasis away from me. On that note, I am also working on the assumption that his investment horizon is much longer than mine, so equity investments should do most of the heavy lifting in his portfolio.
I Resolve to Reduce the Liquidity in My Portfolio
By Sara Silano, Editorial Manager, Morningstar Italy
Rising interest rates took a toll on the stock and bond markets in 2022, so I leant toward cash this year – much more than I did in the past years.
So my 2023 financial resolution is to reduce the liquidity in the portfolio because on an inflation-adjusted based this is dead money. The old rule of thumb for people who are still working is to have an emergency cushion equal to three to six months' worth of living expenses. As we are in a period of great economic uncertainty, I prefer to have a little more, maybe a little closer to a year's worth of liquid reserves.
In reducing the liquidity in my portfolio, I’ll try to find undervalued recession-resistant stocks (or funds that invest in these stocks). These companies tend to be relatively immune to economic cycles because they often have durable competitive advantages (economic moats) that allow them to maintain reliable cash flows over time. Industries that are relatively immune to economic cycles include healthcare, consumer defensive, and utilities.
I Resolve to Stick to the Plan
By Dan Kemp, Morningstar Investment Management’s Global CIO
As we approach 2023, I’m reminded of my grandmother’s advice: ‘it will only get worse if you pick at it’. While this wisdom was directed at various boyhood injuries that accompanied a rural childhood in the 1970s, it is an important mantra in the global financial centres of the 21st century.
Volatile capital markets create surprises for investors. These surprises provoke predictable responses in investors that can have devastating consequences. Chief among these is the ‘flight’ response, characterized by the liquidation of a portfolio to prevent further surprises. Once we have sold our investments, we tend to be reluctant to re-engage in investing, resulting in a lower probability of reaching our goals.
In contrast, the ‘freeze’ response encourages us to avoid our portfolios. Although less likely to result in long-term damage, this response can prevent us from accessing attractive opportunities.
The third response – to ‘fight’, manifests itself as a tendency to make too many changes. This response is fuelled by overconfidence and so of particular danger to professional investors. It is into this situation that my grandmother speaks most clearly. Increasing trading activity is more likely to reduce rather than enhance returns, or to put it more clearly: it will only get worse if you pick at it.
I Resolve to Start Saving For My Childrens’ Education
By Editorial Director Ann Sanner King
I know that one of the keys to saving for the enormity of higher education expenses is to start early. I work at Morningstar. I get it. Now, I’ll acknowledge as a mom how easily this can fall off the to-do list while trying to keep a small human alive. But this is the year for me to get started saving for college in earnest. We’ll be adding another member to our family in 2023, and I feel a sense of urgency around planning for education expenses. I’m clinging to the wisdom of Morningstar’s Christine Benz on the best way to save for college. “My advice is to not overcomplicate this,” Benz says. That will be my mantra next year.
