How can one plan for a future that is unknowable? It’s unfortunate, but I believe this is the mindset that too many Americans tend to have when it comes to their financial well-being. Since they can’t say for certain what will happen next, they instead opt for a “wait and see” approach. But as we’ve discussed in some of our recent posts regarding the “Retirement Risk Zone,” failing to act when it matters most can be a costly misstep.
So instead, let’s take a look at what analysts and the Federal Reserve itself are saying about what the next year may hold for our economy and what we can do to prepare our portfolios for 2023.
Interest rates are expected to continue increasing.
On October 12, 2022, CNBC said, “Federal Reserve officials have been surprised at the pace of inflation and indicated at their last meeting that they expect higher interest rates to remain in place until prices come down.” The article goes on to state that an additional rate hike is expected to take place after the next meeting of Federal Reserve officials in early November. That would mark the fourth consecutive interest rate increase—and suggests that we may continue to see rate increases by the Federal Reserve until inflation starts to slow down.
In an October 17, 2022, article posted on Nasdaq.com, Maurie Backman wrote, “If inflation doesn’t calm down, the consumer may find that borrowing rates are even higher [in 2023].”
This is helpful information—it tells us there’s a substantial possibility that prices will continue to rise in 2023. This gives us ample time to prepare, especially since continually increasing interest rates may lead us to one particular economic environment.
One forecast model is showing a 100% probability of a recession in 2023.
On October 17, 2022, MarketWatch reported that one Bloomberg Economics forecast model shows a 100% probability of a U.S. recession in 2023. A separate Bloomberg survey of 42 economists shows a 60% probability of a recession in 2023.
This, the article states, is taking place “as the U.S. economy contends with decades-high inflation, Federal Reserve interest-rate hikes, and mounting geopolitical tensions.”
Once again, this is good information to have. As a planner who loves to do research, I look for this type of information when deciding on what actions I should take for my own portfolio. It’s also why we at U.S. Money Reserve strive to bring high-quality information to our clients, both about the precious metals industry and the economy as a whole. But now that we have this information, it’s time to ask ourselves: What should we do about it?
There are many ways to add extra protection to your portfolio before a possible recession—including adding gold.
If there is a high chance that we’ll experience a recession in 2023, we may be able to take a number of actions to help protect our portfolios. For some, this might be an opportunity to keep an eye on markets and “buy the dip” when stocks or bonds fall in price, with the hope that prices will rebound when the economy does.
Others may take the opportunity to pull back from paper-based assets like stocks and bonds and instead reduce their overall risk exposure by putting a portion of their wealth into assets that have historically been used as hedges against market factors like inflation and recession. Gold, for example, has retained or risen in price during previous recessions, partly because of increased demand from consumers looking to allocate more of their portfolios to hard, physical assets.
When it comes to the news, I don’t take every story about a possible recession as a sign that I must readjust my portfolio. That said, when such stories continue to trend and warning signs become more clear, I believe it’s important to reevaluate my situation and, if necessary, take actions to reduce my portfolio’s exposure to risk.
News stories like the ones shared here are giving us a fairly clear picture of what 2023 may look like. Now it’s up to you to decide: What steps will you take to protect your portfolio?
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