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With the first quarter of the year behind us, one thing is clear: 2023 is much different than 2022. Inflation and interest rates are still top concerns for many people – especially those with variable rate mortgages. That hasn’t changed. But troubles at some US and European banks weren’t on anyone’s radar at the start of the year. And that much-talked-about recession? It’s still a possibility, even if it’s been held off by a still-sturdy job market.

How you should respond and what you should do to tune-up your finances is, of course, unique to you and your goals – speak with your financial advisor to review the specifics of your plan. Here are five strategies to discuss with them as we roll into the spring of 2023.

1. Adjust your financial plan for higher inflation: here’s how much

The good news about inflation is that it has ticked down from its peak of 8.1% in June 2022. But at 4.3% (for March 2023) it remains above the sub-2% levels experienced prior to the pandemic, and the Bank of Canada has pledged to keep rates at their current level – or raise them further if necessary – until inflation is brought to heel. But even so, it’s a good idea to prepare for higher inflation to stay with us for a while yet.

That doesn’t mean basing your financial plan on high inflation for the long haul. But factoring in a higher long-term average – say 3% – is a reasonable number to go with to keep you on track to making your savings goals.

2. Resist the urge to sell when volatility strikes

Most people know that investing for the long term is a proven way to build wealth. But that doesn’t make it any easier to resist the urge to sell when the stock market – and your portfolio – tumbles into the red. If more proof that staying invested is the way to go, 2023 has provided it.

Back in early January, for example, the stock market’s prospects seemed dim, with recession worries high and interest rates forecast to climb much higher than they’re expected to now. And investors were still smarting from a 9% drop in the TSX Composite Index last year, and a 19% decline for the S&P 500.

With that in mind, anyone holding the average TSX or S&P 500 stock who sold in early 2023 would have locked in those losses – and missed the 6.5% gain in the S&P 500 so far this year and the 3.5% gain for the TSX Composite Index. And the rebound in technology stocks has been nothing short of jaw-dropping: the NASDAQ 100 is up about 16% so far, after last year’s 30% plunge. All figures are as of publishing in April 2023.

When we look back over the long term, this bounce actually makes sense: in the 60-plus years since 1957 the S&P 500 has had 18 losing years – far more winning ones than losing ones – and it bounced back to the green the following year on all but four of those occasions.

3. Now could be a good time to add to your portfolio’s bond holdings

Bonds†, like stocks†, fell last year as rising interest rates cut their value (because a bond’s value tends to move inversely to rates). However, this plunge in bonds’ prices drove up their yields, making bonds a more attractive place to invest for income today. 

If interest rates hold steady or move down over time, as many economists expect, a bond bought today could increase in value to go along with higher yields. Your advisor can help you determine how much of your portfolio to devote to bonds and the best options for you, based on your goals and risk tolerance.

4. Make sure you have an emergency fund (that you can access quickly)

Most advisors recommend saving at least three to six months’ worth of living expenses in case of emergency. That rule of thumb is a good place to start, but much depends on your individual situation, so you may want to save more. Bear in mind, too, that if a recession does hit, jobs will be more scarce, so it may take you longer to find work if you’re laid off.

If you don’t have enough funds set aside – or don’t have an emergency fund – a proven way to build one is to follow the old adage “pay yourself first.” In other words, use automatic transfers to move a fixed amount – even if it’s small – into a separate account every month. That helps eliminate the temptation to spend this money. 

You’ll also want to make sure your emergency fund is liquid, or available instantly if you need it. But even though stocks†, equity mutual funds† and ETFs† are quite liquid, these are better held for the long term, so they’re not the best picks for an emergency fund. In the short run, these assets’ risk of loss is simply too high.

For that reason, it’s best to simply hold your emergency fund in cash. Yes, you’re exposing it to inflation, but the liquidity and safety of cash far outweighs that cost.

Mother and daughter looking at cherry blossom trees

5. Double check your insurance coverage

Your defensive strategy should go beyond recession-protection, however, and aim to safeguard your income from things like illness or injury, as well. Your best tools here are disability insurance (which replaces part of your salary through monthly, tax-free payouts for a specific period) and/or critical-illness insurance (which pays you a tax-free lump sum you can use as you need to while you recover). Your advisor can help you design an insurance plan that gives you and your loved ones maximum peace of mind.

Above all, now is the time speak to your advisor

With the first quarter behind us and the economic picture changing rapidly, this is a good time to speak with your advisor and review your financial plan. They’ll help make sure your plan responds to the changes in the market and keeps you on track with your goals. 

Your advisor can also provide you with a range of other solutions for budgeting, saving, insurance, estate planning, debt consolidation and more. Make an appointment today.

BlueShore Financial, Financial Advisor, Nico Wong

Nico Wong

Financial Advisor

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The information contained in this article/video was written by BlueShore Financial or one of our expert financial writers and was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. It is provided as a general source of information and should not be considered personal financial advice.