2023 is the year of the rabbit, but for investors, it should be considered the year of the tortoise. The lesson of the classic Aesop fable may ring true more than ever as we maneuver through 2023.
At the outset, 2023 will sing the same song as 2022. Inflation will continue to be a factor and the markets will continue to respond. Most indicators show that companies will hold off on investing and hiring until they feel a little more confident about the movement of interest rates. The actions of the Fed will be the catalyst for reevaluating the position to remain slow and steady. All evidence points to the Fed continuing to raise interest rates to curb inflation, however, we feel those rate increases will come at a much slower rate, likely a half to quarter percent in the near term. The Fed funds rate is projected to top 5% in 2023, prior to descending somewhere in the 3.25% range in 2025. When the Fed signals that it has reached the end of its rate hikes, the market will begin to see more activity from investors.
Time The Market or Give the Market Time?
Last year, Anchor’s Wealth Advisor team moved our assets under management to a more neutral position for both bonds and equity. While we have seen some growth off of the horrific lows of 2022, the growth does not feel sustainable and is likely just a bounce that will settle as the markets stabilize.
Seeing these bounces can tempt some investors to try and time the market, buying when the market reaches the bottom and selling when they think it has peaked. Now is not the time—nor is it ever really time—for risky investment tactics. In the year ahead, tried-and-true investment tactics will win. It’s time to go back to the fundamentals.
If 2022 were to be described in a single word, it would probably be unprecedented. From an investment standpoint, there was nothing new about the previous year’s movements, we just normally do not experience these types of declines in stocks and bonds in unison. We have seen the scenarios that played out in the markets before in some form or another. Markets have historically rebalanced every 10 years and prior to the recent tumult, we experienced nearly 12 years of growth! The equity side of the market came down from several years of excessive returns, which made it easy for investors to get complacent. 2023 is helping to remind us that this was not a normal and predictable return environment to build a portfolio around. What made the previous year of investing uncommon were the double-digit losses in the bond side of the market, not seen since the ‘70s. However, the bond yields we are seeing today are reminiscent of the 2008 recovery, giving us optimism for the year ahead.
2023’s greatest lesson is likely to be that a comprehensive financial plan can be the most important tool in an investor’s toolkit. A comprehensive financial plan begins with the finish line in mind. Keeping an eye on your goals can prevent you from falling to the temptations which can take you off course and potentially cost you the race. Now is the time for the slow-and-steady consistency of a comprehensive financial plan led by an advisor who can help you chart the course to a big win!
By Michell Boisvert