Originally posted on: https://johnsavadjian.wordpress.com/2022/11/29/financial-planning-trends-for-2023/
With 2023 right around the corner, it is important to start thinking about your financial plan for the coming year. With increasing inflation rates and the potential of a recession, it is more crucial now than ever before to consult with a financial advisor. If you want to know how to best prepare your finances for 2023, this article is for you.
Plan ahead for increased inflation
Inflation is the rate at which prices for good and services increase across the entire economy. While a little inflation is healthy (there is usually around a 2% annual price increase), rapid increases or decreases in prices can be detrimental to the economy. According to the Northern Trust, the September consumer price index (CPI) rose by 8.2% this year. This is the highest inflation rate the United State has seen in 40 years, with supply-chain issues, bottled-up demand, government spending, and the ongoing war in Ukraine being main contributing factors.
Experts believe that moving into 2023 the rate of inflation should show some signs of improvement. By the end of this fiscal year, the rate of inflation will sit around 8%, but by the end of 2023 the rate is predicted to drop to 3.5%. In terms of personal finances, when high levels of inflation occur, the value of an individual’s money deteriorates, meaning you can no longer buy the same amount of products or services with the same amount of money. When planning out your finances for shelter, airfare, food, auto repair, and everything else you may need in the coming year, it is essential that you take the inflation rate into account. Navigating through inflation can be tricky, which is why it is best to hire an
experienced financial advisor to assist you with your personal finances.
Take risk assessment seriously
With high levels of inflation comes market volatility. While a higher volatility can lend itself to the potential of making more money, it also means that there is a higher risk associated with this potential. Any investments that you make may have a great payoff, but it doesn’t come without significant risk. Hiring a financial advisor that is transparent about risk is very important, as you don’t want to find yourself getting blind-sided by a volatile market. Experts are predicting that the market will continue to be volatile in 2023, so having a financial advisor conducting risk assessments and helping you decide how to best invest your money is a smart idea.
Prepare for a shallow recession
With energy market imbalances, geopolitical tensions, consistently high inflation numbers, and rapidly rising interest rates, many experts believe that the United States is headed for a recession in 2023. Throughout 2022, recession risk has been increasing, with the Federal Reserve raising interest rates in an attempt to counteract inflation. Even with inflation and rising rates, the United States economy is still standing relatively strong. In October alone, the economy added 261,000 jobs and the unemployment rate is still historically low at only 3.7%.
Even though the economy hasn’t been greatly affected by inflation, as interest rates keep rising higher and higher the less likely the Federal Reserve will be able to maneuver a soft economic landing in 2023. Don’t panic though, as not all recessions are created equally. Recessions brought upon by the Federal Reserve are usually shorter in length and milder in magnitude when compared to structural recessions like the Global Financial Crisis that took place between 2007 and 2008.
To better prepare yourself for a recession, you should develop both a budget and an emergency fund. It is also important that you keep up with all current payments, including debt repayments. Since recessions can also cause unemployment, you should evaluate your current career and create a financial plan in case you do get laid off. Consulting with an
experienced financial advisor can help you navigate through the 2023 recession and minimize your risk.
Invest in real assets
A real asset is a physical asset that has intrinsic worth due to its substance and properties. Some examples include real estate, infrastructure, and commodities. Unlike traditional investments, real assets often hold long-term value better. Real assets are a great way to diversify your financial portfolio because of their relatively low association with financial assets like stocks and bonds. Often, real assets move in opposite directions in comparison to more traditional financial assets.
The best part about real assets is that they have historically exhibited a greater ability to dodge inflation and have typically presented stronger returns during times when inflation is increasing. Real assets offer a strong and stable income stream that comes from their fee-for-use nature. Real assets can also be great for investors in low interest rate environments in which more traditional yield options are held down by lower rates. Having steady income streams like those that usually come from real assets can help to cushion total return in investment during times of market volatility, potentially helping to mitigate risk that comes with investing.
The transition to renewable energy
The clean energy landscape has completely transformed due to an increase in demand and significant cost reductions. Instead of investing in a real asset like fossil fuels, it may be worth it to consider investing in renewable energy. In 2015, renewable energy only made up 15% of the global energy consumption, but by 2050, it is expected to represent the largest share of global energy consumption at 28%.
Experts at Northern Trust believe that both private and public institutions will invest in renewable energy and energy conservation as governments continue to better understand the importance of renewables in terms of energy security. If you are a climate-conscious investor, it may be worth it to consult with a financial advisor about potential investment opportunities across the energy supply and production landscape, including pure-clay clean tech firms involved in renewable energy, electric utilities transitioning away from fossil fuels, and oil and gas companies that are investing in clear production.
