Financial Planning in 2023

Financial plans are living breathing documents that chart out a course meant to give you a high probability of meeting your life goals. More specifically, your life goals that require financial resources. People often see their financial plans as fixed in stone, when in reality, every good financial plan must be dynamic to allow for course adjustments as your personal goals change and as things around us change.

Have your goals changed or evolved?

The real world financial plan requires some regular introspection into what’s happening in your personal life and within your heart of hearts. Monumental life changes like childbirths, deaths, marriages, divorces, health changes, etc. can alter your goals and cause a course correction. Likewise, as we age and learn more about ourselves our priorities might change. We are not that far removed from the COVID lockdown which altered all our lives and caused many to reconsider work-life balance, where we spend our time and who we spend our time with. You don’t want to wander too far away from your goals—but goals change. As your goals evolve, your plan must change too.

What changed around us in 2022?

Sometimes it’s easier to focus our attention on what happened around us than to think about what happened to or inside of us. Unfortunately, macro things are always happening in the world that we can’t control or predict with a great degree of confidence. 2022 signaled a sea-change in a number of areas that impacted our financial lives:

Inflation had the biggest impact on our financial lives in 2022, not only did it impact the price we pay for things like gas and food; the pursuit to keep prices under control led to higher interest rates….
Higher interest rates throughout 2022 hurt consumers as mortgage rates more than doubled, it increased the variable interest on credit cards, home equity loans and business financing. On a positive note, increased yields on savings accounts, CDs and bonds meant that savers and investors can now earn something meaningful in a more conservative investment strategy. However, it might not have felt like that in 2022….
Investment markets had one of the worst years ever in 2022 hurting portfolio values. Sure, the S&P 500 -18.1% was bad but we’ve seen worse a couple of times in the last 25 years. The -13% in the bond index had the most devastating impact on investor portfolios, after all bonds are supposed to the safety net of a portfolio. 2022 marked the first time ever that both stocks and bonds were down double digits in the same calendar year. Was your financial plan stress tested against such an event? Perhaps, you need to re-consider your rate of withdrawals for a year or two to allow your portfolio to catch-up. Do you have the ability to scale back travel or other expenses?
Heightened geo-political tensions may be the biggest of the “what changed around us” events of 2022. The war in Ukraine is the first full-scale land war between European countries since World War II. It has impacted global energy and food supply that has expanded the world's re-structuring of supply chains and onshoring beyond what COVID had already started. The re-election of Xi Jinping to lead the Chinese Communist Party for at least another five years heightens the tensions between the two largest economies in the world and increases the probability of a conflict involving Taiwan at some point in the near to mid-term. These geo-political events shouldn’t change your personal financial plan but might re-shape your long-term investment strategy. What led us through the last bull market may not lead us through the next.

Here’s the truth: There’s no way to predict what mix of assets will return 10 percent a year for the next decade. But you can build a plan that accounts for the different scenarios that life could throw at you. That plan should include a re-confirmation of your goals and priorities, identification of the risks you can control and those you can’t and a stress test that will give you the confidence you need to stay committed to the plan throughout your journey.