The Final Third: A Year-End Financial Refresh
The financial year is divided into different phases, each with its rhythm, opportunities, and challenges. But it is the final third of the year that usually attracts heightened attention. During this period, reviewing investment performance, rerouting financial resources, and making a final push toward goals should take precedence.
Reviewing financial goals during the final third of the year is strategic for several reasons:
- To examine progress – The final third of the year is the perfect time to evaluate goal performance. By now, one should have a fair understanding of progress compared to projections.
- To implement corrections – Evaluation provides an opportunity to make necessary changes to work toward year-end goals and plan for next year.
- Make charity donations – The final third of the year is a great time to donate and maximize tax deductions before the year ends.
- Prepare for tax season – Late-year financial reviews can support tax planning and provide an opportunity to make important financial decisions that may lower one's tax liabilities.
How to Identify What Needs Refreshing
Acknowledging the need to revamp one's finances is a crucial first step. But identifying the specific areas that need refreshing is just as important. Here's how to do it.
- Evaluate spending – Examine spending habits to identify areas of overspending and opportunities to cut back.
- Assess the monthly budget – Is the budget realistic? Are there unexpected expenses consistently popping up that need attention?
- Check on debt – Do a quick review and plan a strategy to manage it better or pay it off as efficiently as possible.
- Review investments – Work with a financial professional to examine investments. Are they performing as expected, or do they need to be reallocated?
- Review insurance – Assess whether insurance policies align with current financial situation and future goals. Without adequate coverage, assets may be liquidated prematurely if a significant life event occurs.
Planning for Next Year
After reviewing the current financial situation and making necessary adjustments, it's time to plan for the next year.
- Set goals – Set clear goals for the next year. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART).
- Make a new budget – Examine income, expenses, and financial goals, and plan for the next year.
- Plan for debt repayment – Create a detailed plan for repaying debt, considering methods such as the snowball or avalanche approach.
- Examine the investment strategy – Review and adjust as needed. Diversifying the portfolio, reassessing risk, or considering other investment opportunities may be appropriate.
- Increase the emergency Fund – An emergency fund is essential for unexpected expenses. With increasing costs, increasing one’s emergency fund is vital.
- Review insurance – Review insurance policies to determine whether they still apply to your situation.
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Despite bouts of volatility, markets have been supported by solid economic activity and strong earnings growth throughout 2026. As a result, high yield spreads have narrowed to extremely tight levels, now sitting in the 4th percentile versus history. At the same time, the high yield market has seen a recent uptick in the default rate over the last 12 months, currently sitting at 2.0%. While this figure is the highest it’s been since January 2024, looking under the hood shows that these defaults are mainly concentrated in the CCC credit bucket.
So far this year, there have been twelve payment defaults, mainly concentrated in the cable, paper and industrial sectors. The chart of the week shows that even despite these major defaults in CCC, the overall HY default rate has only moved modestly. This reflects the fact that the U.S. high yield index now includes a much smaller share of CCC than in past cycles. This composition shift could help keep default rates below historical norms. As defaults tick up, questions have emerged about the broader health of the high yield market, but it’s important to note that much of the year-to-date default activity has come from repeat offenders. This points to company specific troubles, rather than issues with the health of the overall high yield market.
Given this, high yield investors should be thoughtful with their manager selection in order to decrease some of their exposure to default risk. High-yield credit conditions remain positive, reflecting a strong corporate earnings season and credit upgrades outpacing downgrades for the fifth month straight. With the index currently yielding around 7.3%, high yield continues to present an attractive income opportunity in portfolios.
Chart of the Week: Source: J.P. Morgan Research, J.P. Morgan Asset Management. Default rates shown by credit rating do not include distressed exchanges and are grouped by rating 12 months prior to default. Bond ratings include split ratings. *Aggregate high yield default rate data do include distressed exchanges.
Thought of the Week: Source: J.P. Morgan Research, J.P. Morgan Asset Management.
Abbreviations: Cons. Sent.: University of Michigan Consumer Sentiment Index; CPI: Consumer Price Index; EIA: Energy Information Agency; FHFA HPI: - Federal Housing Finance Authority House Price Index; FOMC: Federal Open Market Committee; GDP: gross domestic product; HPI: Home Price Index; HMI: Housing Market Index; ISM Mfg. Index: Institute for Supply Management Manufacturing Index; PCE: Personal consumption expenditures; Philly Fed Survey: Philadelphia Fed Business Outlook Survey; PMI: Purchasing Managers' Manufacturing Index; PPI: Producer Price Index; SAAR: Seasonally Adjusted Annual Rate
Index: Institute for Supply Management Manufacturing Index; PCE: Personal consumption expenditures; Philly Fed Survey: Philadelphia Fed Business Outlook Survey; PMI: Purchasing Managers' Manufacturing Index; PPI: Producer Price Index; SAAR: Seasonally
Adjusted Annual Rate
MSCI EAFE is a Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East.
Bond Returns: All returns represent total return. Index: Bloomberg US Aggregate; provided by: Bloomberg Capital. Index: Bloomberg Investment Grade Credit; provided by: Bloomberg Capital. Index: Bloomberg Municipal Bond 10 Yr; provided by: Blomberg Capital. Index: Bloomberg Capital High Yield Index; provided by: Bloomberg Capital.
Key Interest Rates: 2 Year Treasury, FactSet; 10 Year Treasury, FactSet; 30 Year Treasury, FactSet; 10 Year German Bund, FactSet. 3 Month LIBOR, British Bankers’ Association; 3 Month EURIBOR, European Banking Federation; 6 Month CD, Federal Reserve; 30 Year Mortgage, Mortgage Bankers Association (MBA); Prime Rate: Federal Reserve.
Commodities: Gold, FactSet; Crude Oil (WTI), FactSet; Gasoline, FactSet; Natural Gas, FactSet; Silver, FactSet; Copper, FactSet; Corn, FactSet. Bloomberg Commodity Index (BBG Idx), Bloomberg Finance L.P.
information from FactSet's Pricing database as provided by MSCI. Russell 1000 Value Index,
Style Returns: Style box returns based on Russell Indexes with the exception of the Large-Cap Blend box, which reflects the S&P 500 Index. All values are cumulative total return for stated period including the reinvestment of dividends. The Index used from L to R,
top to bottom are: Russell 1000 Value Index (Measures the performance of those Russell 1000 companies with lower price-to book ratios and lower forecasted growth values), S&P 500 Index (Index represents the 500 Large Cap portion of the stock market, and
is comprised of 500 stocks as selected by the S&P Index Committee), Russell 1000 Growth Index (Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values), Russell Mid Cap Value Index (Measures
the performance of those Russell Mid Cap companies with lower price-to-book ratios and lower forecasted growth values), Russell Mid Cap Index (The Russell Midcap Index includes the smallest 800 securities in the Russell 1000), Russell Mid Cap Growth Index (Measures the performance of those Russell Mid Cap companies with higher price-to-book ratios and higher forecasted growth values), Russell 2000 Value Index (Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values), Russell 2000 Index (The Russell 2000 includes the smallest 2000 securities in the Russell 3000), Russell 2000 Growth Index (Measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted growth values).
Past performance does not guarantee future results.
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This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any
jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
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