- The Wealth Expedition
- Posts
- New Year’s Resolutions for 2025
New Year’s Resolutions for 2025
Do you have financial resolutions for the New Year? Consider prioritizing a max of three goals at one time.
Daniel Lancaster
January 06, 2025
Our weekly newsletter features the following sections:
First time reading? Subscribe for weekly content here.
“Studies suggest you can build a maximum of three new habits simultaneously.”
-Arnold Schwarzenegger in Arnold’s Pump Club
NEWS
What Happened Last Week
The S&P Global Flash US Composite PMI rose from 54.9 in November to 56.6 in December, suggesting the strongest performance in the private sector since March 2022. This was driven by services rather than goods, a common theme since the rush for goods in 2020.
China’s manufacturing and non-manufacturing PMI measurements showed signs of continued expected growth, especially with a strong resurgence of service and construction activity.
Ukraine halted the flow of Russian gas to several European countries after its five-year transit deal expired.
Supply of completed single-family homes is up nearly 300% since 2022 and is at its highest absolute level since 2009, causing home pricing to be down 6.3% since one year ago.
30-year mortgage rates, however, continue above 7% due to the expectations of a slower frequency of interest rate cuts.
The median forecast for the S&P 500 performance this year is about 12%. Remember that stock markets rarely do what the majority expects, however.
Investor sentiment borders on fear at the moment according to the AAII Investor Sentiment Survey and Fear and Greed Index.
The S&P 500 just recrossed its 50-day moving average to the upside.
The S&P 500 has been moving overall sideways for about two months.
How I See It
This is key: markets almost never do what the majority expects.
If the majority expects the S&P 500 to be up 12% on average this year, then it is likely to end the year significantly different either side of that number.
The 5-year standard deviation of the SPX (the S&P 500) is about 18. That tells me a fairly typical range might be somewhere between -6% and +30%. But that’s huge, so let’s narrow it down.
We’ve already experienced two above-average years for growth, even in comparison with the average positive year. The bull market began in October 2022, so has just recently completed its second birthday.
The best returns tend to happen in the first and last third of a bull market. The middle can often be lackluster with a fair bit of volatility.
But here’s the strange thing about this bull market. It wasn’t birthed out of a recession. Historically, recession helps to reset the growth potential for the longer term. With this one, history suggests the lack of recession might be a headwind for the length of this present run.
The average bull market following a recession has been about 61 months (5 years) versus the average bull market not preceded by recession being about 33 months (just shy of 3 years).
So here’s what I think.
I think the year will be positive, but if I had to bet, it will likely come with plenty of volatility that ends with a positive single digit positive return.
The reason I don’t expect a bear market to be likely is because we still have room for the Federal Reserve to implement meaningful monetary policy. We’re operating below our capacity due to reasonably elevated interest rates.
Evidence suggests that our economy remains healthy overall with still further capacity for boosts from monetary policy if needed.
But even now may be a time of potential further downside because of the interplay of fear, a 2-month sideways movement, and a price trying to keep its head above the 50-day moving average.
Regardless, if this is not the beginning of a bear market (which I’ll continue to monitor), then it is not something which requires a major shift in portfolio strategy. Even modest growth is worth capturing, and any error in attempting to time the market could totally wipe out one’s growth for the year.
Better to ride it out than to risk missing out on a whole year’s potential returns.
PARADIGM SHIFT
New Year’s Resolutions for 2025
As a young man, one of my many heroes was Arnold Schwarzenegger.
Entering the New Year with fitness goals among others, I decided to subscribe to his newsletter Arnold’s Pump Club.
I found that his insight into goal-setting translates perfectly to finance as well as health.
Here’s the simple summary in two sentences:
“Research suggests that simultaneously working on several goals is a critical mistake and that less is more when trying to achieve resolutions or goals.”
“Other studies suggest you can build a maximum of three new habits simultaneously.”
Maybe you have one or more financial goals this year. Among them could be:
Create and stick to a budget
Pay off debt
Earn a higher salary
Save for a near-term purchase (car, vacation, new home, etc.)
Begin saving for children’s college
Save more toward retirement
Give more to charity
Take a course or class
Learn stock market investing
Invest in real estate or a small business
The list could go on. But it takes anywhere from 20-60 days to form a new habit. If you plan to tackle more than three total goals this year, consider breaking them into portions of the year.
For example, you could focus on creating and sticking to a budget from January through March. Once you are confident you are succeeding at this, then begin to save for the big purchase (like the car) with the additional surplus you created.
And once you’ve comfortably settled into both of these new realities, without falling back into the old ways, then maybe you tackle that course or class to improve your education toward earning the higher salary.
Even if you go for more than three goals at any one time, make sure there are three ultra-focused goals. If you have to give up one for a time, don’t let it be one of those top three.
Remember, if it takes 30 days on average to form a new habit, and you can reasonably pursue 3 at any one time, that adds up to plenty of goals that can be achieved by the end of the year!
FINANCIAL TOOL
Price-to-Book Ratio
Here’s one method of finding potentially undervalued companies.
It’s relatively simple: the price-to-book (P/B) ratio.
What is the book value? It’s what the company is likely to be liquidated for if it were simply sold for the value of its physical assets.
Book Value = Total Assets - Intangible Assets - Total Liabilities
This assumes no value for any future earnings, goodwill or other potential profit-making characteristics of the business. It’s a very conservative valuation of its lowest sell price assuming it went bust.
What is the price?
Price = Current Stock Price x Number of Shares Outstanding
By dividing Price by Book Value, we can determine how much added value is attributed to the business due to its intangible assets. Intangible assets are essentially the speculative part of the valuation, how much investors are estimating that future earning potential to be worth.
Some deep value investors would consider a ratio close to, or even below, 1 to be a high-probability bet on upward price movement.
Why?
Because if a company’s price is below the book value that it could be sold for, then it appears investors are already betting on its failure.
In other words, investors are willing to pay less today than it will be worth when liquidated so that they get a reasonable return on investment even if the company goes under.
Any success at all from the company would likely cause its price to increase, though of course there are no guarantees. It’s just a higher probability trade.
But betting on failing companies isn’t a high-return strategy in the big picture. So many value investors prefer a P/B ratio at 3 or below.
There are limitations:
If the book value goes negative due to more intangible assets or liabilities (which could especially happen for things like tech or service companies), then the ratio becomes meaningless.
In a high-growth company, the P/B ratio could be much higher and yet still have plenty of room for price growth.
As with all things finance, there is no one-size-fits-all method. But the P/B ratio is one tool you can use to understand the current state of a company’s price in comparison with peers in its same industry.
HERE’S HOW I CAN HELP
COURSE 2 OF 3 IS AVAILABLE!
I am in the process of creating three in-depth digital courses that comprehensively will make you a master of your financial destiny.
For the New Year, I’ve released the newest course:
This course will lead you step-by-step toward developing your escape plan into a life of comprehensive wealth: time, flexibility, purpose and money.
Walk through the lessons and accompanying action steps to create an extraordinary life change today which culminates in a bridge to financial independence in the near future.
Each lesson builds upon the last, covering these main topics:
Master high-impact budgeting techniques to create a surplus today
Develop a plan to become debt-free in record time
Raise your salary this year
Use tax strategy to fast-track your goals
Bridge your way to entrepreneurship
This is a learn-at-your-own-pace course with 7+ hours of content that will set you on course to achieve your dream life well in advance of retirement age using simple but powerful habits of finance.
I’d love to hear from you. Let me know what you’d like to see in upcoming newsletters, articles, or a digital course at Contact Us - The Wealth Expedition.