2023 is just around the corner, and if you haven’t already, it’s time to start thinking about your financial planning for next year. Today we’re breaking down the current state of the market including inflation rates, recession potential, the best types of investments right now, and more. Read on to understand how you can best prepare financially for 2023.
Planning For Inflation
If you’ve been grocery shopping, filled up your car with gas, or bought a plane ticket recently, it should come as no surprise that inflation has been at an all-time high. The September consumer price index (CPI), which indicates changes in the price of consumer goods, rose 8.2% over the past year according to Northern Trust.
Moving into 2023, however, we expect inflation to improve somewhat. While inflation will sit at an 8.0% rate at the end of 2022, Kiplinger states this number is projected to drop to 3.5% by the end of 2023. And as the economy starts to slow down, price growth will slow, too.
What does this mean for you? It’s important to account for inflation in your financial planning; shelter, airfare, food, and auto repair are still notably high. But over time, the higher priced services we’re seeing now should gradually start to level out.
Considering Risk Assessment
A volatile market may make you feel especially concerned about your money. That’s understandable. And it’s true that any investment is going to require some amount of risk.
Many experts think the market will continue to be volatile in 2023. That’s why it is so important to look for an advisor who is transparent about risk. In one 2020 study conducted by BlackRock, 65% of advisors said they either always or often show how portfolio risks and returns align with client objectives and risk profiles.
71% of advisors also stated that discussing risk helped their clients stay invested during times of volatility. Next year, work with a financial advisor who is willing to openly discuss risk.
Preparing For A Shallow Recession
Many consumers are wondering whether we’ll see a recession next year. Northern Trust states that this is still viewed as a 50/50 chance over the next year. However, they also explain it’s important to understand that not all recessions are created alike1.
Recessions that are induced by the Fed are typically more mild in length and magnitude than structural recessions such as the Global Financial Crisis that happened in 2007-20082.
What we may see next year is what many experts are calling a “brief and shallow” recession. This is essentially just what it sounds like — a recession that occurs in certain parts of the world and does not last more than about a year.
You can be better prepared for any type of recession by developing a budget and an emergency fund. If possible, keep up with your current payments as well as any debt repayments. And since recessions typically cause unemployment, take stock of your career and consider what you might do if you get laid off.
Investing in Real Assets
According to Northern Trust, real assets have become an important component of any financial portfolio1. The primary real assets are:
- Global natural resources
- Real estate
- Listed infrastructure
All real assets should do well in the five-year environment Northern Trust is predicting. Real estate and listed infrastructure help diversify your portfolio while offering higher yields than traditional equities2.
Depending on your risk tolerance and time horizon, natural resources may be a good addition to your portfolio. Natural resources could offer a safety net in case of unexpected inflation3. A Bankers Life Securities financial representative can help you determine if investing in natural resources is the right decision for you.
Transitioning to Renewable Energy
Northern Trust explains how a focus on national energy security and high fossil fuel prices creates potential investment opportunities for renewable energy3.
We expect to see both private and public investment in renewables and energy conservation as more governments understand how important renewables are to reach energy security.
A Bankers Life Securities financial representative can help you understand what kind of investments — including real assets such as global natural resources and renewable energy — might be right for you in 2023. Contact us today!
- “Monthly Investment Guide,” September 14, 2022, Northern Trust Asset Management
- “Capital Market Assumptions,” August 10, 2022, Northern Trust
- “Tech in business,” BlackRock, last accessed May 20, 2020. A total of 510 U.S. advisors with at least $25M in AUM participated in the BlackRock survey.
- “Investment Strategy Commentary — Energy Crisis,” September 1, 2022, Northern Trust Asset Management
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