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Many of us feel like we’ve been on a three-year financial roller-coaster ride. First the pandemic brought fears of a deep recession. Then government and central-bank stimulus sent real estate and the stock market soaring – and the jobless rate plunging. And more recently,  with inflation high and many forecasters calling for a 2023 recession, concerns about savings, retirement plans, mortgages and portfolios are top of mind for many people.

With 2023 here, this is a good time to take stock of the risks and opportunities the new year could bring, and examine some strategies to protect and grow your wealth (and reduce concerns, too).

1. Remember that economic cycles change, but time is on your side

One way to keep optimistic through a tough economy is to remember that investing is a long-term endeavour – a marathon, not a sprint. And if you stick to a diversified portfolio built according to your age, goals, risk tolerance and financial situation, you have a better-than-average chance of satisfactory returns over time.

Consider, for example, that according to research firm McKinsey & Co., the S&P 500 posted a 9.0% annualized return between January 1996 and June 2022, a period that included the 2008 financial crisis, the March 2020 crash and much of the 2022 market selloff. 

Investors run into trouble when they make knee-jerk, emotion-based decisions, which are likely to lead to selling at lows and buying at highs. A multi-year plan, built with the help of your advisor, can help you avoid that scenario. 

2. Pay attention to economic forecasts, rely on long term planning to see you through

Forecasts are important to bear in mind, particularly around interest rates, given their outsized impact on the economy. The good news here is that we’re likely near the end of this rate-hike cycle, after the Bank of Canada hiked its policy interest rate from 0.25% at the start of 2022 to 4.25% in early December 2022. 

Indeed, the bank has more or less said as much: the statement that accompanied its December 7 hike noted that the bank would “be considering whether the policy rate needs to rise further,” a departure from previous statements, where it said it expected rates would need to move higher – a subtle but important change in phrasing.

A halt (or at least a pause) in hikes, which many forecasters expect to last through 2023, would bring relief to holders of variable rate-mortgages (more on those shortly) and other debts with interest rates tied to the Bank of Canada’s policy rate. But it would also mean we’re likely at or near the top of rates being paid on bank deposits and the like.

All of the above factors are worth considering as you plan your financial moves for 2023. But remember, too, that these forecasts could be wrong, so you’ll need to ensure your plan has some built-in flexibility. We only need to look back to the Bank of Canada’s October 27, 2021 rate announcement to see how far off forecasts can be. Back then, the bank said it expected the consumer price index to be around 2% at the end of 2022 – the reading in October 2022 was 6.9%.

3. Buying a home? Less frantic market means less stress 

If you’re planning to buy a home, patience will be the watchword in 2023. Mortgage rates have jumped in lockstep with Bank of Canada rate hikes (for variable-rate mortgages) and 5-year Government of Canada bond yields (for fixed-rate mortgages).

These hikes have cooled the market: according to the Real Estate Board of Greater Vancouver, the number of homes sold in November 2022 was down 37% from the 10-year November average and 53% from the frenetic days of November 2021. Prices are drifting lower, too, but remain high: the average price for all properties sold in Metro Vancouver was $1,131,600, down 1.5% from October 2022 and 10.5% in the last six months of 2022.

The takeaway here is that with fewer buyers in the market, today’s shoppers can be more selective. Moreover, if a recession occurs within the next year, interest rates would likely decrease, too. With that said, be sure to remember in the second point above and budget for unexpected rate hikes if recession forecasts turn out to be wrong.

4. Variable-rate mortgages: Talk to your lender to get the full picture as rates rise

Variable-rate mortgages generally come in two varieties: one where the payments rise and fall with the lender’s prime rate (which is linked to the Bank of Canada’s policy rate) and another with fixed payments, where more (or less) of the payment goes toward interest as  prime fluctuates.

Mortgage holders with the latter type have seen their amortizations lengthen in the last year (provided they haven’t raised their payments or made substantial lump-sum payments). Some have hit their “trigger rate,” where all of the payment goes to interest. 

In that case, you may have to increase your payment or make a lump-sum payment to get back on track. (There may also be other ways to address this issue; speak with your lender if you find yourself in this position.)

You may choose to convert your variable rate mortgage to a fixed rate, or stay the course. Your best choice depends on a mix of factors, including your current rate, future rate forecasts and your goals surrounding your mortgage. The key, as always, is to fully understand your risk appetite, financial situation and the changing rate outlook. Your financial advisor can help ensure you have a firm grasp of all three.

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5. Term deposits give you peace of mind – and could be a useful budgeting tool, too 

Similar to guaranteed investment certificates (GICs), term deposits – as they are known in the credit union space – are popular in times like these because they give you a guaranteed return. Moreover, your investment in a term deposit is insured – such is the case at BlueShore Financial where your principle is 100% guaranteed** through the Credit Union Deposit Insurance Corporation of British Columbia (CUDIC).

There are a wide variety of term deposits available: redeemable and non-redeemable, and even some with returns linked to those of the stock market. Rates vary depending on the terms of the individual deposit, but the main commonality is that your principle isn’t at risk of loss.

Finally, there’s one more little-discussed advantage of holding such an investment: they can help you stay financially disciplined. That’s because if you have spare cash, you may be tempted to spend it. But if it’s in a non-redeemable one-year deposit, say, you wouldn’t be able to do so. If you are looking for long term growth, increased term deposit rates have begun to look attractive, but market investments may still be the most appropriate over the long term. All investment decisions should be made with your goals in mind – your advisor can help guide you.

From deposits to retirement, Your BlueShore advisor is here for you

The best way to address your financial concerns is to contact your financial advisor and get a check on your finances and the prospects for the year. They can help you build and maintain a financial plan that’s appropriate for your age, personal situation and risk tolerance. In addition, the knowledge that a professional is looking over your investments is a priceless reassurance in trying times like these. 

Also, a professional advisor can help ensure you don’t miss any potential opportunities – so make an appointment with your BlueShore advisor  (either virtually or in person). If you already have a financial plan, now is a particularly good time to get in touch and ensure it’s up to date as the investment picture continues to change. Reach out and make an appointment today. 

BlueShore Financial Advisor Diana Rowatt

Diana Rowat

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. 

** Deposits are 100% guaranteed by the Credit Union Deposit Insurance Corporation of British Columbia (CUDIC).