Looking back, 2022 was a year of uncertainty and surprises. While it started with the hope of a post-pandemic recovery, the war in Ukraine and spiking inflation quickly took center stage. Then interest rate hikes by the Federal Reserve threw cold water on housing and consumer spending.
What’s on Tap for 2023?
Here at Planning Alternatives, we’re expecting an equally unpredictable 2023. While there’s no crystal ball, we expect this economic reset to continue. As the economy strives to integrate recent interest rate hikes and inflation, there’s a high likelihood of a recession (and some people believe we’re already in one).
We can expect more spending slowdowns and rising unemployment as consumers and businesses adapt to changing economic currents. Unfortunately, that likely means more turbulence in the markets as well.
How Financial Planning Prepares You for Life’s Surprises
These are the times we’re reminded of the critical importance of financial planning.
Advance preparation doesn’t give you a crystal ball. What it does do, however, is get you prepared for rough seas. Even if you don’t get the disruption exactly right, the stress testing and contingencies you put in place are the keys to getting through difficult times successfully.
Steps You Can Take to Prepare for another Potentially Volatile Year
As financial planners, we help families get and stay on track to reach their long term goals. Here are the steps we recommend you take to get ready for 2023.
- Revisit your financial plan. Your financial plan is your roadmap, so it’s vital to continually check in and ensure you’re on track. As the new year starts, it’s a good time to adjust the plan if needed. Is there anything new on the horizon you need to anticipate?
- Favor active investment management. You can’t just “set it and forget it” in volatile market conditions. Now is the time for a more actively managed investment strategy focused on wealth preservation.
- Take advantage of current interest rates. The Federal Reserve’s benchmark interest rate hasn’t been this high in 15 years. If you’ve got upcoming obligations, it’s a great time to park those funds in T-bills, CDs or money market funds. These higher rates may not last. It may be wise to lock in with CDs or other fixed-income investments if that fits into your financial plan.
- Keep saving and investing. Volatility can be anxiety-producing, but don’t let it put you off saving and investing. On the contrary, your purchases during bear markets may have lower risk (who doesn’t love a sale?). Look to maximize tax-advantaged savings as well. That means using health savings accounts (HSAs), Roth IRAs, and other retirement accounts.
- Stay diversified. In this unpredictable environment, diversification is more critical than ever. Check in to ensure that your entire asset portfolio—not just your taxable stock accounts—are adequately diversified across many asset classes.
- Make time for tax planning. Tax planning is vital so you can identify and capture any savings available. And this year, there are some significant changes as the IRS and other agencies have adjusted over 60 different tax rates and benefits for the recent surge in inflation, as well as Congress recently passing SECURE Act 2.0. Check out our 2023 Tax Guide for tax information for the year ahead.
- Schedule family money conversations. We recommend using the new year to have (or start) family conversations about money. Include your spouse/partner and children, but don’t forget your parents. Planning now is always easier than waiting for an emergency to force the conversation. Yes, it may feel awkward, but feel free to enlist our help. We’ve assisted many clients in getting everyone up to speed on family finances.
Are you ready for 2023?
Contact us today to set up a time to talk. We’ll review your financial plan and investments and work with your professional team members to help make sure you’re prepared on all these fronts.
Let’s schedule a time to talk!