Riding the wave: Navigating the market in 2023
If you felt uncertain about your finances last year, you’re not alone. A recent study found that in 2022, nearly two-thirds of Americans felt anxious about money, and almost three in ten reported feeling more anxious about their 2022 finances than in 2021.
Saving for retirement is all about playing the long game. When it comes to investing, market fluctuations may cause some investors to feel nervous and deviate from their strategy. We know it’s never fun to watch investment balances trend in the wrong direction, but this is a cyclical part of investing. To achieve your long-term financial goals, you’ll likely need to save through a few decades. And throughout those years, you’ll have to navigate through multiple market cycles and everything that comes with that — both good and bad.
Speaking of bad, will 2023 be as rough for investors as 2022?
It’s impossible to predict where the capital markets will land by the end of 2023 other than to say it will likely look different than last year. That said, it’s uncommon to see years where U.S. stocks and bonds are both significantly down, as we experienced in 2022.
At this point, we can anticipate several factors that will drive investor sentiment in 2023. It looks like inflation is beginning to ease after the rapid interest rate increases in 2022. This week the Federal Reserve increased its key interest rate by a quarter percentage point and indicated that they will likely do so again next month. While additional rate increases could tip the U.S. economy into a recession in 2023, the Federal Reserve has reduced the rate increases from 0.75% to 0.50% and then to 0.25%. And so far, the U.S. labor market remains robust across most sectors with near historic lows in unemployment.
Other developments to keep an eye on in 2023 include:
- The ongoing tragedy of Russia’s war on Ukraine and its impact on the people of Ukraine, the European economy, and global commodity markets
- China’s unwinding of its zero-Covid policy, along with the slower economy and population growth
- The crypto sector and whether any of the conflagrations there cross over to mainstream financial institutions
- The resilience of U.S. consumers against inflation and the potential softening of the labor market
- The game of chicken unfolding in Congress about extending the U.S. government debt ceiling
What does this mean for me as an investor?
As always, we recommend remaining focused on the basics.
If your employer does not currently offer a retirement plan, we encourage you to give them a nudge in light of the generous tax credits from SECURE 2.0 and several states like California and Oregon already mandating small businesses to have a retirement plan.
If your employer already sponsors a plan, we encourage you to revisit how much you are saving personally and whether you can increase your regular deferrals, especially if your employer matches contributions. For those in the fortunate position to save up to the annual contribution limits, note that they have increased to $22,500 this year from $20,500 in 2022.
Lastly, the new year is also an excellent time to revisit your risk tolerance to see how well you weathered the prior year and if you are comfortable with the level of portfolio volatility you are taking versus your need to take investment risk to grow your savings.
The information provided in this article is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein.