Goals For 2023: What To Prioritize As You Build Out Next Year's Wealth Management Strategy

Like bodies and cars, financial plans do best when they receive regular attention and routine checkups. The end of the year is the perfect time to reflect on where you are financially and consider whether you are on track to get where you want to go. 

This December, consider giving yourself and your family the gift of a financial review. Take some time to sit down with your financial documents, consider your goals, and compare where you are against where you want to be. Then, plan your strategy for next year. 

Let's look at what you might prioritize as you build out next year's wealth management strategy.

A Review of the Market and the Economy

If you’ve hired a financial advisor to manage your investments, your market and economic review may be as simplistic as holding your annual update meeting or reading their latest market update. Either way, having a sense of the current economic environment may allow you to evaluate your own circumstance and if you’re prepared for the uncertainty ahead.

The COVID pandemic and its aftermath taught us one thing: uncertainty is never far away.

Since February 2020, the Dow Jones Industrial Average has dropped as low as 20,704 and risen as high as 36,799. Trough to peak, that's a mammoth swing. In the same time period, housing prices across America jumped about 42%, nearly doubling many homeowners' equity but making it hard for other people to get that all-important first house.

Within that national context, what does 2023 hold for investors?

Let's start with a single caveat: No one can predict the future. Neither a crystal ball nor a Ph.D. in economics can tell you what the market will do next year. We can, however, look at historical data and draw reasonable assumptions from what we learn.

First, we see a possible recession in 2023. Pandemic stimulus funds have run out. The real estate market is softening and inflation, while showing some signs of easing, is still running hot in most places across the U.S. We could see some continued layoffs, as a number of notable business leaders have expressed concerns over the global economy. At the same time the job market remains strong as labor reports continue to come in higher than expected. 

The stock market faces a great deal of continued uncertainty going into 2023. Wall Street watchers are saying that it could increase or decrease by as much as 10-20 percent in 2023, but that's pretty typical for a normal market. Although the overall value of the Dow Jones Industrial Average may not change much between 2022 and 2023, we could see a lot of volatility during that time period.

The word volatility scares a lot of people, but for long-term investors — which is what we encourage nearly all our clients to be — it can actually be a boon. Now if you're trying to time the market, a volatile season can set you back. But if you are conscientiously putting a percentage of your income into an investment account every month, or rebalancing your investments accordingly,  then you could actually be buying shares at discounted prices during an otherwise tough season.

What about traditionally turbulent assets? How are things like commodities and cryptocurrency expected to perform in 2023?

This year, crypto's meteoric rise ended in its dramatic crash. Both Bitcoin and Ethereum declined by 50%, and FTX — the third-largest cryptocurrency exchange by volume — went belly up in a way that resembled Enron or the Madoff scandal. 

As for commodities, some experts predict a mixed outlook in 2023. Globally, wheat and oil could take a beating because of Russia's invasion of Ukraine. If there is an end to the drought in the U.S. and Canada, soybeans and corn could have a good year. 

As a whole, though, commodities tend to fluctuate fast, and they tend to do so based on factors you can't control — like the weather or international politics. 

If all that sounds a lot like saying that we don't know what will happen in 2023, well that's because we don't know. Only God knows with 100% certainty. What we can say is that the U.S. stock market has averaged roughly  10% annual return over the past 30 years. If history has anything to teach us, it's that buying and holding a mixed portfolio of stocks tends to be one of the very best ways to make your money work for you.

Your Investments

Let's say you've been putting money in the market for a while now. Are your investments properly positioned for 2023? 

If you're not sure how to allocate your investments, then it is likely time to analyze your financial position and reassess your investments accordingly. 

Consider what your goals are and how your investment strategy is helping you get there. 

One way to look at your investments is to consider the various types of investments you hold. For example, consider your stock to bond allocation (the amount of stocks vs. bonds you have). Like other “like-kind” investments, stocks and bonds often play a different role in your investment strategy. 

Let’s look at the frequently talked about 60/40 allocation model as an example. In this scenario, you divide your assets with 60% going to stocks and 40% going to bonds. The strategy is based on the idea that stocks are riskier than bonds, so under this plan, you hold both stable investments and potentially high-growth investments. Wealth managers sometimes call these "risk-adjusted returns." 

The 60/40 model sounds like smart investment planning, but is it actually a good idea?

The real question is likely directed to what is a healthy allocation for bonds.

Bonds and stocks have a low correlation, so when stocks are performing poorly bonds are likely to perform well. For this reason, maintaining a reasonable bond allocation helps reduce volatility, or risk, that an all-stock portfolio would have. 

In today’s rising interest rate environment, where ten-year government bonds are inching back to a 4% yields, 40% in bonds might once again sound appealing to some investors.

All-in-all, stock-to-bond ratios and diversification among those allocations is often an important role for any long-term investor. 

If you think you need more balance (between risk and return) or if you are nearing retirement, talk with your financial advisor about your ideas. Reviewing your investments with your wealth management professional can help make sure that you are investing appropriately to meet your goals.

What Else Should You Prioritize in 2023?

Your investment portfolio alone does not determine your financial health. You may also want to consider cash flow, savings, estate planning, insurance, debt, and your overall financial picture. 

Cash Flow and Savings

Revisit your budget (or spending plan). If you don’t have one, consider making one. This way, you can decide ahead of time how you will use your money and if your spending aligns with your overall values and goals. 

A key element in helping you be prepared is an emergency fund. Do you have savings that can help cover the unexpected expense, like repairing an appliance or new tires for your car? What if you lose your job? How much you should hold as an emergency fund depends mainly on your circumstance. A general rule of thumb is to have at least three to six months of expenses in a liquid cash account. So if the unexpected does occur, you can be prepared. 

Proverbs 21:20, reminds us ‘In the house of the wise are stores of choice food and oil, but a foolish man devours all he has.’

Your Estate Planning

Everyone needs an estate plan. At minimum, you should have a will, a durable power of attorney, and a healthcare power of attorney. In some cases, you may also want to set up a trust for your heirs. 

Make sure you have a plan for all your physical property, including real estate, automobiles, boats, and RVs. It’s also a good idea to keep records of what assets you have and where they are. Collecting all your financial documents and organizing them can be a big help to your executor and heirs. 

If you need to update your estate plan, remember to talk with your financial advisor, as well as your estate planning attorney. 

Your Insurance Coverage

Take a look at your insurance policies. Have you covered everything you need? Are you over insured anywhere?

For most working Americans, disability and life insurance coverage can be a good idea. Your employer may already be providing some of this. Consider what, if any, disability benefits your state provides and if you need additional coverage on top of what you already have. Now may also be a great time to consider your auto and umbrella policies. Understand what’s covered and what’s not. 

Many people get health insurance through their workplace, but this may be a good time to evaluate your options and prices. If you’re not covered through your employer, it’s open enrollment, and prices between carriers and plans often change year to year. Review any medications you're on. Is there a different plan that would reduce your overall costs? Consider different types of plans. You may be able to take a higher deductible plan and open a Health Savings Account (HSA) to take advantage of certain tax benefits.

Your Mortgage

As a whole, 64.8% of homeowners hold mortgage debt, totaling $16.01 trillion. It is believed that more than half the people who take out a mortgage do so with less than 6% down. And to top it off, nearly one-third of mortgage holders are confused about the fundamentals of mortgages.

If you aren't sure how much you owe, what your rate is, or how much private mortgage insurance (PMI) you are paying, now is the time to find out. While most mortgage holders will not want to refinance in 2023 due to higher interest rates, this could be a good time to see how quickly you could pay down the mortgage you do have.

Your Overall Finances

To build out your next year's wealth management strategy, it is important to prioritize and make wise saving and spending decisions in 2023. December is a great time to review all the pieces of your financial life. Review your net worth, understand what accounts you have, the tax impact of each, and how it all works together to accomplish your various goals. Revisit your budget, make a plan to pay off your debt, and consider if you need to increase your savings and retirement investments. 

Hedging Against Uncertainty

As baseball great Yogi Berra used to remark, "The future ain't what it used to be." 

While 2023 could bring a more stable economy than we've grown accustomed to in the last few years, it will likely bring its fair share of pain, too. Make sure your family is protected from the economic turbulence the year could bring. In general, hedging against uncertainty means your investments should be targeted based on your risk tolerance, goals and time horizon. It also tends to mean you hold the proper amount of insurance and have planned for unexpected events.

Fortunately, while the unexpected may take us by surprise, it doesn’t surprise God. Above all, He is in control. So while we can not plan for every outcome, we can do our part by controlling what we can control and being wise with the resources He has provided.

As we move into 2023 — and farther away from the chaos of the pandemic — nearly 34% of Americans say they do not expect to recover financially. And 59% say they are living paycheck to paycheck. Saddest of all, 41% of people say they have no one to turn to for advice.

At Cooke Wealth Management, we're committed to helping our clients build a wealth management strategy that aims to protect their family and their legacy long into the future. We'd love to talk with you about how we can help you plan for the future. Give us a call today.

Disclosures: Past performance is not indicative of future results. We are not recommending that any particular investor should buy or sell any particular security. Each investor should review their investment strategy in light of their own situation before making any investment decisions. All expressions of opinions are subject to change in reaction to shifting market environments and without notice.