5 Financial Actions You Shouldn't Take in 2023
Sometimes the best way to do the right thing is to not do the wrong thing. As 2023 begins, let's discuss some ways we can avoid some of the "wrong things".
Don't Translate 2022 Market Performance into 2023
It's easy to think that the stock market will continue to perform the same in 2023 as it did in 2022. The truth is that 2022 was a very rare year of both widespread stock and bond declines that is not common. On average, the stock market is up 3 of every 4 years. These odds are statistically the same each year regardless of what happens in the previous year. Additionally, the market is a forward-looking mechanism, and future expectations are a much more reliable driver of probable results than trying to base performance solely on what happened in the previous year.
Don't Freeze in the Face of Market Losses
While staying invested for the long-term in a properly diversified portfolio will lead to eventual success, it is not the only thing you can do. Continuing to contribute money to investments, especially those in tax-advantaged accounts, is a great practice in down markets. As high quality companies trade at lower valuations, putting money to work at these levels will help to recoup and accelerate gains as markets rebound. If you don't have extra money to contribute, consider other moves to better your tax position, such as Roth IRA conversions or Tax-Loss Harvesting.
Don't Neglect Insurance
While inflation has been putting a squeeze on the budgets of American households, we can't forget to cover the basics of Risk Management. Don't cancel or stop paying on your necessary insurance coverages even if you've seen your premiums rise. Many times, revisiting our budget will reveal areas of other spending that can be cut out to make sure you aren't uninsured if a major unexpected expense arises. The beginning of the year is a great time to look back over the last year to evaluate what areas of spending are most common, and if overspending is occurring, to address it before it gets out of control.
Don't Focus on just Investments
Investments are one element of a financial plan, but they should be viewed as a a part of your whole situation and not the entirety of your financial picture. As markets fluctuate up and down, remaining focused on what we can control and not let our emotions become driven by the news headline of the day. (Hint - the media doesn't get paid to give you prudent advice for retirement).
Don't Stop Giving
The fifth and final piece of 2023 "To-Don't List' is to not turn off your personal giving faucet. Ultimately, we are human beings created to help one another in good times and bad. Helping one another during times of uncertainty yields benefits that are far greater than seeing green numbers in our investment portfolios. Have the courage to continue giving even when you feel like keeping it for yourself. We don't need to always give financially. We can give out of our time, energy, and expertise, or any combination of these. By continuing to give out, we don't shut off the flow and allow the same giving spirit to come back to us.
Spiritual Application
Creating a list of items to avoid is similar to establishing a system of defense or garrison in a certain area of our lives. Proverbs 4:23(NET) says "Guard your heart with all vigilance, for from it are the sources of life." Achieving success in finances is no different than success in other areas of our life. By focusing on and establishing proper defenses of our heart, we are not only guarding our spiritual life, but we are also expanding that into the practical and physical areas of life, including finances, health, relationships, and so on.
Many times we want the "lottery approach" to our lives and think that all we need is just one quick fix and our problems will be solved. The truth is that we need to focus on a continual approach of improvement and believing that many little good decisions can add up to greater than the sum of their parts. Establishing these "defensive" positions early will allow us to continue to avoid bad decisions and the results that ultimately follow.
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