It’s that time of year, when every Wall Street bank and investment firm comes out with their predictions for the coming year. As I say every year, it’s important to keep in mind that these “predictions” are nothing more than educated guesses, wishful thinking, and marketing. They should not be viewed as investment advice and repositioning your portfolio solely based on anyone’s predictions is generally a bad decision.
In my annual investment outlook, I always try to focus on strategies that are more practical for investors. My friend, Yoni Raab, suggested that this year I look to Parshas Mikeitz and Pharaoh’s dreams to glean some timeless Torah wisdom for investors to apply in the year ahead. As always, Mr. Raab’s suggestion turned out to be spot on.
Pharaoh’s dreams: Pharaoh’s first dream had seven fat cows followed by seven thin cows, who came out of the Nile River. In his second dream, Pharaoh saw seven full heads of grain growing on one stalk, followed by seven thin heads that swallowed the full heads.
Yosef’s interpretation: Yosef, who was imprisoned in Egypt, was called upon to interpret the dreams. He explained that they signify seven years of abundance followed by seven years of famine. He correctly interpreted the dream, noting they served as a warning to prepare for a future period of scarcity by storing food during the good years.
Insights for investors: The important message for investors from this Torah portion is threefold:
Lesson # 1: Plan ahead: In light of Pharaoh’s dreams, Yosef advised the Egyptians to plan ahead. That is always good advice. While no one knows what’s in store for investors in 2025, the key is taking precautionary measures today. No one is immune from the financial disruptions that can come from job loss, a drop in income, death, disability, and a whole host of other life events.
These unfortunate events necessitate having the following:
- An emergency fund: An emergency fund with three to six months’ worth of expense money.
- Insurance coverage: It’s also worth reviewing your insurance coverage to ensure your family is properly protected if the breadwinner dies or becomes disabled. Other insurance, including home, auto, and umbrella, are also essential to protect your family.
- Estate plan: Having an updated estate plan in place can protect your loved ones and save them significant headache and hassle in the event that you pass away.
Lesson # 2: Focus on what you can control: The years of famine itself were out of the Egyptian’s control. Yosef’s advice to Pharaoh was predicated on what the Egyptians can control, which was saving wheat in the seven plentiful years in preparation for the upcoming difficult years. Focusing on what is in our control is a good message for investing and life in general. While readers don’t have any influence on tax policy, interest rates, or the daily movement of stock prices, there are a few things that they do have control over. This includes:
- Maintaining a high savings rate: One superpower that investors have is the ability to maintain a high savings rate throughout their working lives. Folks that can save 15-20% of their income every year, for an extended period of time, will be very happy at the size of their nest egg in the future.
- Keeping a diversified mix of investments: It’s very tempting to pile into investments that have performed the best over the past few years (e.g. technology stock). However, that type of portfolio concentration is ill-advised. Every area of the market moves in cycles, and no one knows when any investment will no longer be in favor. This is why embracing a philosophy of broad diversification across many areas of the market is a prudent way to manage risk within your portfolio.
- Being tax conscious: Investors can be tax conscious even without knowing future tax policy. Make use of the various tax advantaged accounts. This includes retirement accounts such as IRAs, 401(k)S, 403(b)s, and know when to utilize Roth vs. Traditional options. It may also include College Savings 529 Accounts, Health Savings Accounts, and possibly others depending on an investor’s circumstances. Furthermore, utilizing certain investment products over others may also give investors better after-tax returns.
- Staying disciplined: There is no shortage of distractions trying to get investors to make bad financial decisions. This includes the talking heads, social media influencers, friends at the kiddush club, or your broke brother-in-law. In order to overcome these influences, embracing a philosophy of automation may help. This means having a preset investment portfolio set up by your financial advisors and having money deposited into it on a regular basis. This takes the emotion out of investing and makes you less susceptible to making impulsive decisions.
- Maintaining long-term perspective: Anything can happen in the markets in the short term. However, over the long run the stock market is far more predictable. Looking back at history, the long-term performance of the market is quite powerful. It keeps various “financial crises” in perspective, while reminding investors of the benefits of staying the course.
Lesson # 3: Famine brings opportunity: The final financial lesson of this story is that famines bring opportunity. The famine in Egypt allowed Yosef to shine by revealing his insights and planning abilities, which elevated him to the second most powerful person in the land. The famine also brought the reunion of Yosef with his family when they came to Egypt seeking to purchase food.
While no one knows what 2025 has in store for us or our money, it’s important to keep in mind that with every challenge comes opportunity. In the investing world, a bad market typically offers a wonderful buying opportunity to purchase stocks at discounted prices. It may also offer tax, estate, and financial planning opportunities when your assets are temporarily at depressed prices. I have found that optimism always wins the day, especially for investors. After all, the stock market is up about three out of every four years. Inevitably there will be challenging markets, but maintaining a positive attitude and a proactive philosophy can help investors sail through the proverbial famine and improve their life going forward.
May 2025 be a year of health, wealth, peace, and only good things for you, your family, and all of Am Yisrael!
