Personal Finance

3 Wise Financial Moves for the Holiday Season

Snow covered green Christmas tree with red ornament in foreground
Credit: tab62 / stock.adobe.com

By Tammy Trenta, MBA, CFP, CTC, CEXP, Founder and CEO - Family Financial

Whether you’re the type to ride at dawn on Black Friday, grasp your phone for the quick draw on Cyber Monday, or skip the madness altogether, one thing remains certain: Before we know it, the holidays will be over. So will 2023.

Those thinking about how to best position their pocketbooks in time for yuletide often ask me questions like the following: It’s close to the holidays—should I invest in big retailers? Or buy shares of FedEx? Ooh! How about 3M? Everyone needs Scotch tape this month, right?

I remember when I was brand-new to finance and eager to start investing for my own retirement. When the following December approached, I thought buying shares of Toys-R-Us was a stroke of genius. Everyone is loading up on toys in the next few weeks. This stock should make a killing!

It did not.

What I later learned is that Wall Street watches for known blips—like the holiday toy rush—and factors them into pricing. So trying to time investments based on things like seasonal patterns doesn’t typically work. What is important is to focus on the long term.

But even seasoned investors are cautious as the economy continues to play an unsettling game of peek-a-boo. The days of the pandemic—when consumers had surplus savings and strong wage growth—are behind us. Yet people are (technically) still working and spending; high-interest credit cards are funding more purchases than ever, and unemployment numbers are tempered by the gig economy.

Looking at the economy feels like watching a car crash happen in slow motion. You know it’s going to hurt. The question is when. While I’m hopeful the market gets back on track quickly, interest rates need to drop for this to happen. And there are no signs that the Fed will lower rates anytime soon.

As you figure out how to position your finances this season, keep the following three tips in mind:

1. Get debt under control. Debt is expensive these days, so be cautious about taking on new debt—especially variable debt. Take a close look at your debt-to-equity ratio (what you owe versus what you own—including real estate and retirement accounts) and aim to get that number under 50%. For example, if your net worth is $1,000,000, you’ll want to owe no more than $500,000. 

And if the market starts to wobble, keep a close eye on that ratio; if your asset values are declining, your debt shouldn’t be going the other direction; a good way to do this is to stay well-diversified. Speaking of debt, I’m also concerned about home loan rates; when rates eventually drop, home values could, too—meaning those who bought in at a high rate, certain they would be able to refinance, might find themselves underwater. 

2. Focus on the long term and make moves on themes, not blips. While you won’t get rich from buying candy cane companies in December, certain behaviors that are cyclical do affect the markets, and understanding how they work is important.

A great example is the recent shift in real estate; although the sector made remarkable gains prior to the pandemic, when the Fed started raising interest rates, we saw the writing on the wall. We chose to exit real estate in favor of energy—specifically Master Limited Partnerships (MLPs) invested in pipeline infrastructures. Between stalled oil production during COVID, global conflicts, and the various embargoes that followed, MLPs shot up 27%.

3. Take advantage of market dips. Remember, market pullbacks are normal. If you are very close to retirement, you’ll want to be conservative during pullbacks, making sure you have enough money in bonds to meet living expenses for several years. But if you have a while until retirement, you might consider buying stocks when they are “on sale”— knowing there will eventually be a recovery.

Speaking of buying toys and candy canes, I would actually advise avoiding the retail sector right now—but if you must invest here, stick with consumer staples. This encompasses retailers that sell things people need no matter what (like food and supplies) making them more recession-proof compared to consumer discretionary (designer shoes and flat-screen TVs).

Without a crystal ball, it’s difficult to say what things will look like in the foreseeable future; so much depends on when we hit the tipping point. We do know the season is likely to leave many households with no savings, expensive debt—and one stroke of bad luck away from disaster. By embracing discipline, prudence, and staying informed, we can better navigate the challenges ahead and look forward to greater financial security in 2024.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Tammy Trenta

Tammy Trenta, MBA, CFP, EA, CTP, is the Founder & CEO of Family Financial, a wealth management firm based in Los Angeles, CA. With 25 years of industry experience, Trenta believes in a holistic, 360 degree approach to wealth and financial management, integrating financial, tax, and legal guidance to help clients accelerate their wealth and keep more of what they earn. Family Financial (FF Advisors, LLC dba Family Financial) is a registered investment advisor.

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