How Can I Prepare My Portfolio for 2023?

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For many investors, 2022 has been a reality check after the long bull market of the past decade-plus.

Many assets purchased during this period enjoyed steep gains fueled by low interest rates. Rampant speculation and investors flush with cash drove prices higher as everyone searched for the next compounder.

That included cryptocurrencies (some touted by celebrities), meme stocks (think GameStop/AMC), or digital artworks (most backed by nothing at all).

It was easy to invest without a plan or professional help—all you had to do was buy and watch the returns come in.

Fast forward to today, at the tail end of one of the worst years for the markets in recent memory, things look a lot different.

Even if you navigated the market successfully over the past few years, you likely feel a little lost. Volatility is the new normal, with rising interest rates and inflation scrambling some of the assumptions we had grown accustomed to. Safe havens are gobbling up attention (Series I bond, anyone?), and earnings appear to be at risk. It’s starting to look like 2023 could be another tough year with many of these uncertainties looming.

To help navigate through the unknowns, you’ll need a partner and a plan.

Here at Cedar Point Capital Partners, we’re ready to help on both fronts. But you’ll also have some homework to do before the year is up to help put yourself at the front of the class. Call us to set up your year-end planning session, and review the following list to get your mental wheels turning.

Preparing Your Portfolio for 2023

Review your investment portfolio

Year-end is a good time to take a closer look at your investments and make sure your holdings align with your preferred allocations and risk tolerance.

Portfolios naturally drift over the course of the year as gains, losses, and dividends change the values of your holdings. That eventually requires the buying and selling of assets to bring your portfolio back to your target allocation.

Likewise, your tolerance for volatility ebbs and flows over time. Are you still feeling as aggressive as you once were or is your risk capacity changing? Your financial adviser can help you sort through these implications, but we also recommend taking a step back from the current market climate and reflecting upon where you currently stand.

Review your time horizons

We start every client consultation with a review of your time horizons and coming life events, as a component of holistic wealth management. You may have started the financial planning process with an idea of retiring at 63, but life tends to happen. Maybe you need to move to a new house or buy a different car that wasn’t in your original plan.

By understanding your true time horizons, we can tailor your financial plan to make sure you’re ready for both short- and long-term goals, instead of sacrificing one for the other.

Consider retirement and tax implications

The end of the year brings plenty of tactical items to complete as well. When it comes to your 401(k), know that you have until the end of the year to make elective salary deferrals to that plan.

Your employer may look to adjust their contribution rates going into next year, and the IRS has raised limits for deferrals, making these accounts powerful tools for saving. When the calendar flips to 2023, some will be able to sock up to $75,000 annually into their retirement plan account.

If you are an Iowa-based client and you’re planning on withdrawing money from a pre-tax retirement account — perhaps for a down payment or just monthly income — we are recommending that you wait, if possible, until 2023.

Thanks to some of the state's recent tax reforms, those disbursements will no longer be subject to state income tax, meaning the potential for savings of up to 8.53% on gross distributions if you can wait a few more weeks.

Re-evaluate your debt and reserves

Another item that has changed in 2022 is the cost of debt. If you’re carrying credit card debt, know that it’s more expensive now with the increase in interest rates. We can help you build a plan to pay it off in 2023 once and for all.

For our clients with student loan debt, we are recommending they apply for the previously announced student loan forgiveness plan as soon as possible. Although the courts have temporarily blocked the program from discharging debts, the U.S. Department of Education is continuing to review applications. While the future of the program is uncertain, you won’t be able to participate if you don't fill out an application. You can apply here.

When it comes to your cash reserves, deposit accounts have become a more attractive place to save as interest rates rise. Make sure that you’re taking advantage of the current rate environment and parking your cash reserves where it makes the most financial sense. As of this writing (November 8), some FDIC-insured savings accounts are yielding north of 2.50% APY; in many cases that's 5X the going interest rate offered throughout 2021.

Schedule your total financial checkup

OK, we’re a little biased on this point, but you need to find a trusted partner who can help you chart the best path to your financial life goals. With the complexities that come in bear markets, like the one we currently find ourselves in, it pays to get help building and sticking to your plan. You see your dentist at least once a year (hopefully), why not your financial adviser?

If you’re ready to hop off the treadmill of chasing the next big thing and build a more solid financial foundation, give us a call. We’re ready to help you take on 2023 and beyond with an evidence-based, relationship-focused partnership.

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