2023 could very well test the nerves of investors and advisors alike

Herald-Tribune, The (Sarasota, FL)

Over the past few weeks Wall Street forecasters have begun issuing their projections for 2023, and since forecasters have their good years and bad years, I tend to look at the aggregate. This year, the "Street" expected a tough start to the year with a recession, causing market indexes to fall, possibly below what we saw throughout the year.However, they also expected prices to recover toward the end of the year, though we might end the year lower than last. Many are seeing signs the Federal Reserve Board's rounds of tightening are coming to an end with inflation easing in 2023. U.S. Treasury Secretary Janet Yellen recently said she believes the inflation rate will be much lower at this time next year. I don't envy Jerome Powell and the Fed.When inflation overheats the economy to such a degree, getting rates back into alignment with healthy business conditions can feel like landing a 747 on a postage stamp.Rate increases are determined months before we feel their effects in the economy. Keep eyes firmly on S&P 500 Earnings Forecasts, savings rates, and unemployment.

If earnings drop, so will stocks; if personal savings rates decline, so will consumer spending. And unemployment numbers dictate a hard or soft economic landing from this government driven slowdown.

So have the rate increases been excessive, with the plane overshooting the runway? We don't know yet, but people, smarter than I am believe it's likely that the cost of the rate increases will be some kind of recession in 2023. Maybe not a deep, prolonged one, but all recessions are painful. The good news is as leverage exits the markets, traders go home (IPO's, SPACs, crypto scams, and penny stocks all dry up). The true long-term investors are left, improving valuations via lower prices, so every new dollar into the investment arena is a bit more stable than it was prior. This can create some "dry powder" ability to lower percentage rates that the Fed can act on in future years.

With that said, here's an attempt at a modest, prudent course of action in 2023:

∙ Play defense. With the risk of a recession, it's a good idea to think about tilting your portfolio toward Aksala preferred posture of Large/Mid Cap U.S. Dominant Rising Dividend Companies that operate close to the consumer (recession resistant services) with potentially a higher 0-3 year maturity fixed-income allocation.

Healthy 4-6% yields now exist, and the principal decline in high quality bonds is presumably coming to an end with the Fed's future decision to slow or eliminate interest rate increases just around the corner.

How much defense you want to play is a function of your long-term goals (intestinal fortitude) and when you'll need your money. The sooner you'll need it, the more defensive you should be.

∙ Be ready to pounce. If stocks nosedive because of recession, take advantage of the very reasonable prices for high-quality equities. Investors don't get many opportunities to go bargain hunting, and 2023 might provide such a chance.

∙ Be ready for a creative Fed policy. Despite forecasts for 2023 centering on a rough start and a rebound, nobody really knows anything; this the first global deleveraging of this scale. We're a long way from the low inflation and steady increases in the markets that we saw for most of the 2010s.

∙ Don't sacrifice long-term goals for short-term safety. People sometimes make bad decisions under duress, including selling stocks, when they feel like the world is caving in.

This is where a financial adviser, especially one who has experienced recessions with a large diverse client list and ideally with a meaningful portfolio themselves, will provide a seasoned and objective view.

This is not the moment for the freshly graduated bank adviser, or your brother-in-law's holiday stock picks to take the helm.

Next year could very well test the nerves of investors and novice advisers alike. I believe, however, that the American economy is remarkably resilient because of our free market system and the endless opportunities it creates.

I am not as ready as others to predict the year-end results of 2023, but I'm starting to believe that the flight plan for a recovery from this difficult cycle of inflation is emerging.

Create a written financial plan with a prudent investment portfolio and the turbulence will not be as alarming.

Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the "Millionaire Next Door." He can be reached at 941-500-5122 or [email protected]. Read more of his insights at heraldtribune.com/business. Securities offered through Avantax Investment ServicesSM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory ServicesSM, insurance services offered through an Avantax affiliated insurance agency. 6260 Lake Osprey Drive, Lakewood Ranch, FL 34240.