We will enter 2023 in a deep recession, and the financial predictions for this period are primarily based on this current economic condition. Though the economy is already at a very low point, we are slated to go deeper into a national recession. This means that unemployment, underemployment, the cost of goods, and financial stress will be high. On the other hand, the stock market will bottom out.
But it does get better. We will most likely continue to see a downturn in the economy through mid-year. But we should start to see an upward trend as we transition into the fall. By late October or early November, things should begin to come back online. But keep in mind that this will probably be a slow turnaround. We probably won’t be back to our “new normal” until mid-2024. But things will begin to look brighter before the end of 2023.
2023 Financial Predictions and Guidance
Economic downturns usually put people in panic mode. And rightfully so if they are not prepared. But there are things you can do to circumvent or diminish the adverse impact of impending economic events. As always, I advise everyone to save, invest, and prepare for difficult economic times in general. If this isn’t something you have been doing, you can get started right away.
The first thing you want to do is set aside an emergency fund. These are funds that you will use to cover your living expenses in the event that you lose your primary source of income. In general, you should have about 3-6 months of living expenses stored away. And in normal economic times, I usually advise people to put back at least 10% of their income for this purpose.
But in 2023, my recommendation is to be more aggressive – if you can, put 15%-20% or more of your income into your emergency fund. Thereafter, ensure that you cover your household expenses. If possible, try to keep them around 30% or lower of your overall income. Finally, it is best also to invest to maximize your earning potential.
If you are not already investing, you should start in 2023. This will be the ideal time to capitalize on your earnings once the market goes back up. But take your time and do your research before you jump in. Mercury will be in retrograde motion when we start the year, and this is not the best time to start new financial endeavors. You can read more about the best strategies for investing during Mercury retrograde in this post. If you feel anxious about investing, there are many tools you can use to help you get started.
If you already have a portfolio or you are ready to invest, it is vital for you to trade strategically throughout 2023. It will be best to focus on broad-based, total, and sector funds during the year as the market goes through dips and dives. My recommendation is to put about 60% of your investment money into broad-based or total funds and about 20% into sector funds.
Broad-Based and Total Funds
Broad-based funds basically cover the top 500 or so companies in the US stock market. Total funds, on the other hand, cover a more comprehensive segment of the stock market, either regionally or globally. These types of funds are fairly safe and hold their value pretty well over time. Their safety lies in their ability to balance the ups and downs of the stock market by covering a wide range of top-performing stocks.
Sector funds are similar to broad-based and total funds in that they cover a wide range of indexes. However, sector funds focus on specific areas such as healthcare, energy, financial technologies, real estate, etc. These types of funds can balance out your portfolio and add a dimension of specificity.
About 10% or less of your investment should go to blue chips. Blue chips are tried and true funds like Berkshire Hathaway, Johnson & Johnson, Mastercard, etc., that have stood the test of time. These funds generally yield nice dividends even when the market is low. So they are a pretty safe bet even in the worse economic times. But the key is buying low and selling high.
Individual stocks should account for about 5% or less of your investment funds. These types of funds can be much more volatile and uncertain than blue chips. Many don’t pay dividends to investors, and they don’t have a long track record. But they may be promising based on their popularity and income-earning potential.
About 5% or less of your investment funds should go into crypto. Cryptocurrency is a digital currency, as the name implies. These funds are maintained and managed in the virtual world within a decentralized system. They have likewise proven to be very volatile over the past few years. And the crypto market has taken a major hit with significant losses due to bankruptcies, theft, etc.
Blue chips, individual stocks, and crypto will be a steal at the beginning of the year. So, grab them while you can. But, only purchase a small amount since trading individual stocks, and crypto is much risker than doing so with ETFs. And try to diversify as much as possible when purchasing these types of stocks. In doing so, you cast a wider safety net for yourself. For deep level insight on how to manage your money in each month of 2023, check out this post.
To determine if crypto is a good buy for you in 2023, check out this episode of the African Tarot podcast:
Disclaimer: Dr. Asanee is a financial coach, not a licensed financial advisor. The guidance provided in this article is meant to help you establish and maintain measurable financial goals. It is not an exact blueprint for investing in the stock market and should not be deemed as such.