There’s no denying that 2022 was a turbulent year characterized by rising inflation, higher interest rates, and fluctuating markets. It’s natural for investors to wonder what 2023 will bring. But like many things in life, the markets don’t hit reset at midnight on January 1, and a lot of the themes from last year will continue to impact portfolios in the coming months. It can be tempting to want to overhaul your financial plan and start anew, but that’s not always the recommended course of action. Continue reading to learn more about five investment resolutions that will help you stay on track to achieve your life and financial goals in 2023 and beyond.
1.) Reassess Your Goals and Objectives
As the saying goes, “new year, new you.” The start of the year is a great opportunity to reassess what is most important to you and adjust your financial goals and objectives accordingly. Maybe you want to prioritize income generation or capital appreciation or outpacing inflation as your primary objective. Another important question to ask is how much risk you’re willing to take and how much you can really handle.
Investing is always risky, even in a strong market. Let’s say you’re nearing or have entered retirement, you might want to take on less risk. Your financial advisor can help you uncover income-generating opportunities that work for your specific portfolio strategy and goals. Maybe you’re still accumulating wealth and are willing to take on more risk; your financial advisor can help you determine growth opportunities or ways to fortify your portfolio for the future.
2.) Look Forward, Not Backward
After a challenging year like 2022, it’s easy to assume that what didn’t work last year will have the same outcome in 2023. But this is a classic behavioral finance mistake that can lead to negative consequences. You don’t want to fall into the trap of autocorrelation and assume that if your returns were down last year, they’ll be down again this year without changes to your strategy. Past returns tend not to correlate with future returns and making decisions based on past results can be costly in the long run.
That’s not to say there’s no merit in learning from past mistakes. The current market bears some resemblance to that of 2008-2009, but it’s not expected to reach the levels of the great recession. It’s important to remember that the market is cyclical. Those who stick with it and keep with their strategy will ultimately recover. While risks to economic growth remain in 2023, financial markets are starting the year with better valuations and lower expectations, which is often a good time to invest.
3.) Maintain Balance Despite Market Conditions
Diversification and portfolio balance are terms you likely hear when it comes to investing. That’s because the concept is crucial to achieving long-term goals. Diversifying your investments across various assets is a proven way to balance risk and reward in your portfolio. There’s always going to be a flashy, new stock to invest in, but it’s important to maintain balance.
Economic and market conditions can change quickly. What worked well in one environment may come under pressure in another. 2022 saw a significant shift in equity market leadership from the large cap technology stocks that dominated during the pandemic to the energy, consumer staples and utilities stocks that have held up best in the post-pandemic environment. This shift from growth to value style of investing was rapid, and diversified portfolios tended to fare better than those following the crowd.
4.) Reconsider Bond Strategies
2023 is the year for putting the “income” back in fixed income. For many years, conservative cash and bond strategies were not producing much income given the ultra-low, near zero-interest rate policies in place for much of the last decade. Investors were still generating returns from their bond portfolios as long as rates were falling, but this was mainly from price appreciation rather than income generation.
All of this changed in 2022 when the bond market started seeing a reset on interest rates, making bonds attractive once again. Going forward this year and beyond, balanced portfolios with a mix of stocks and bonds are expected to benefit from the stable income generation of government and investment-grade corporate bonds. The new year may be a good time for you to reconsider your bond strategy and further diversify your portfolio.
5.) Build a Healthy Portfolio in the New Year
Of course, building and maintaining a healthy portfolio is one goal that carriers over every year – and for good reason. Setting up a healthy investment strategy today will set you up for years to come. Part of the process is examining both the quality of what you own and the environment that lies ahead. Understanding that higher rates and inflation will likely continue to affect our world going forward can help you better assess your current portfolio and plan for the future.
As always, any investment strategy requires thoughtfulness. You don’t want to put your money just anywhere or always follow the latest fads. The costs of doing so and being wrong are higher than any potential reward. Having a trusting relationship with your financial advisor will prove extremely beneficial when navigating all of the factors that contribute to a healthy portfolio.
Ensuring a Strong 2023
While the market is not likely to see a major transformation in 2023, the start of the new year is always a good time to revisit your portfolio and investment strategy. Working alongside a financial advisor will ensure you start the year on the right foot with a healthy, balanced portfolio. Be sure to reach out to a Wescott Advisor today to begin taking the right steps towards achieving your financial and personal goals in 2023 and the years to come.
