Here’s what to do—and what not to do—with your investments in 2023.
With the 2022 elections in the rearview mirror, we are all looking ahead to see how 2023 will unfold. Having Republicans in control of the House and Democrats maintaining control of the Senate and the White House has left some investors uneasy as they wonder what divided government might mean for taxes, regulations and the economy.
When it comes to your portfolio and financial plan, how can you separate the noise from sound investment practices in 2023? We asked Cindy M. Campbell, Senior Wealth Strategist at Regions Private Wealth Management in St. Petersburg, Florida, how she’s viewing the year ahead.
The Markets
With a divided federal government, Campbell says, a lot of financial professionals are in wait-and-see mode. “It’s hard to say for sure how it will affect investments, but in the past, a divided government has led to stability in the markets because there weren’t a lot of legislative changes that impacted investing.”
While it’s impossible to know how the year will play out, she adds, “Because of the makeup of federal government, I don’t expect anything dramatic to happen when it comes to legislation that would impact investments and the economy.”
Inflation and the Economy
As an investor, you are likely keeping a close eye on the fight against inflation. That said, a divided government is unlikely to have much of an effect on rising prices. The Federal Reserve, which is taking steps to battle inflation, is independent. “The Fed is going to do what the Fed is going to do regardless of politics, so a divided government would not affect any actions that the Fed might take to fight inflation, such as continuing to increase interest rates,” Campbell says. “There may be some political posturing from both sides of the aisle to strong-arm the Fed, but that won’t change the Fed’s actions.”
As for the overall outlook for the U.S. economy, Campbell says, “It seems like inflation is starting to slow down, which is good. There’s still a chance we could go into a recession, although I think it will be much milder than people originally expected.”
The Debt Ceiling Battle
Since the beginning of the year, the financial news has been full of stories about the possibility that political fighting could lead the federal government to default on its debts, with catastrophic consequences for the economy and individual investors. Should you be worried?
“I wouldn’t panic yet,” says Campbell. While it’s true that the federal government hit the debt ceiling on January 19, Treasury Secretary Janet Yellen has said the country probably won’t reach the point of not being able to pay its debts until late summer. “I don’t think it should be a big concern for investors now. Whenever we’ve reached the debt ceiling in the past—for example, in 2011—Congress and the president compromised and agreed to raise the debt ceiling. I expect the same thing to happen this time.”
Still, the possibility of a government default, however remote, could lead to jitters in the markets. “When we get closer to the summer,” Campbell says, “the market might start to react and we could see volatility, but I don’t think we’ll actually get to the point where we can’t pay our debts as a country.”
Tax Policy
“It’s doubtful we’ll see any meaningful tax changes,” says Campbell. The Consolidated Appropriations Act, which was signed into law in late 2022, made changes to existing retirement laws that start going into effect this year. Beyond that, Campbell says, “we don’t think we’ll see anything else this year that would impact taxes.” Looking further out, she adds, “we might see a fight in 2025 over expiring tax rules that came into effect with the passage of the Tax Cuts and Jobs Act of 2017.”
Regulations
On the regulatory front, one of the biggest issues that’s likely to come up in Congress is related to environment, social and governance (ESG) investing. “The Democrats would like to see more disclosures from companies about how ESG considerations in their operations can impact investors, but the Republicans aren’t in favor of such disclosures, so there might be a battle.”
We might also see a push to undo what the Republicans see as excessive regulation, Campbell says. “House Republicans have expressed their intent to have more oversight of the federal agencies that issue regulations. Whether that goes anywhere is another question.”
What to Do (and Not Do)
While there are still a lot of unknowns about what will happen in 2023, Campbell says investors would be wise not to overreact. “Fundamentally,” she says, “the economy is not slowing down as much as it was last year. So our advice is ‘Don’t make any big changes. Let’s see what happens as the year plays out.’”
Do keep an eye on your investments and retirement accounts. Even though you’re hearing a lot about what may or may not be happening with the federal government, you should use this wait-and-see period to consult with your advisors and make sure you’re on track to meet your financial planning goals.
“There’s a lot of hype right now,” Campbell says, “but that shouldn’t change your investment philosophy.”
Talk to Your Regions Wealth Advisor About:
- Whether your investment philosophy—and the balance of assets in your portfolio—is appropriate for the 2023 forecast.
- What inflation in 2023 may mean for your retirement plan.
Interested in talking with an advisor but don’t have one?
Find a contact in your area.
