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  • Writer's pictureDamon C Collins, MBA, AAMS®, CFEI®

Tuning Up Your Financial Plan and Portfolio for 2023

The combination of high inflation, the Federal Reserve’s aggressive program of rate increases, and economic and geopolitical uncertainty has meant volatile markets and the vanishing of traditional sources of portfolio diversification and saving goals.

Progress has been made, but as the new year unfolds, it will bring additional challenges, including a potential recession. How will that affect financial plans and investment portfolios? There are some things you can do to help keep your cash-flowing plan on track and steps to ride out more market volatility.

Cash Flow Planning

Cash flow planning is the foundation of your financial plan and needs to be specific. While budgeting is part of cash flow planning, the goals of each are very different. Budgeting is about making choices to keep spending in check. It is about current expenses dealing with the short-term time horizon. Cash flow planning looks at the short-term and the long-term. It is a tool to help you make decisions to help you achieve future goals.

Set Clear Goals

Spend some time identifying short- and long-term goals over a 5–10-year time horizon and then assign spending targets. These could be education savings, a second home, home improvements, early retirement, paying off a vehicle, starting your own business, etc. For example, paying an extra 100 dollars on the principal for your car loan can allow you to pay off your vehicle a year earlier.

Deploying Your Cash Flow Planning Strategy

The planning part links your cash flow to your future expenses to help you achieve your goals. The process uses the outcome of your cash flow planning to create a road map to achieve each goal. Different strategies are devised for each to guide better results. When done correctly, it can uncover gaps in your financial plan. For example:

  • Are you taking enough investment risk with your investments, whether in your retirement or taxable accounts?

  • Should you refinance debt?

  • Are you saving enough for retirement?

  • Do you minimize taxes through tax-advantaged saving vehicles like health spending accounts and 529 plans?

  • Should you diversify your income stream or invest in more tax-efficient sources of income, such as real estate?

  • Should you use more savings investment tools, such as CDs, Bonds, and money market funds?

Are Your Investments Diversified?

Equities and bonds have historically been negatively correlated, meaning that when the market or economic factors drive one down, the other is usually up. This reflects a push-and-pull between these two asset classes partly caused by investor behavior.

Equities generally carry more risk than bonds but may offer more return. Environments in which the prospects for equities are positive result in investors piling into equity positions and pulling money out of bonds. When investors are concerned about economic conditions, the “risk-off” trade goes into effect, and investors exit equity positions for the relative safety of bonds.

This has worked for decades, but there are some environments when equities and bonds move in tandem. With inflation far from under control and the Fed insisting it is not done on interest rates, we may see more return-killing volatility up ahead.

Assess your existing portfolio:

  • Have market moves resulted in positions that have crept above or fallen below your target allocations? This can result in overconcentration. Consider a rebalancing strategy that incorporates tax-loss harvesting.

  • We are clearly in a new phase of the business cycle. Consider tactical moves to defensive sectors that can perform well in an economic downturn.

  • Assets that are not correlated to the public markets – meaning either equities or bonds – may provide sources of diversification. These may include real estate, commodities, private equity, and credit.

Tax-Loss Harvesting and Re-Deploying Cash

Once you’ve identified where your portfolio is out of line with your target allocation, you’ll need to determine what to sell. Keep in mind:

  • The IRS has created a hierarchy for how losses can be used to offset gains. Short-term losses offset short-term gains, and long-term losses offset long-term gains. If your short-term losses exceed your short-term gain, the excess can be applied to long-term gains and vice-versa.

  • If you are selling a position you acquired over time at different costs, look at the cost basis and maximize your tax benefits by selling the highest-cost-basis shares.

Once your strategy for selling is in place, you need to consider how to redeploy the cash that results. Selecting an entry point can be difficult, with market volatility likely to remain elevated. Reinvesting all at once can leave you vulnerable to significant market shifts. One approach to avoid this is dollar-cost averaging. In this strategy, you invest the same amount each month regardless of how the market performs. The goal is to help you make consistent investments and avoid ill-timed decisions because you’re buying in at every price point.

Cash Is King

After years of earning almost zero, certificates of deposit and some savings accounts are now paying significant amounts of interest. Does this mean cash should be a more substantial piece of your investment strategy? A better way to answer the question is to think about the role of cash.

If you’re still working, you should have enough cash to cover three-to-six months of living expenses. Think about this as an insurance policy. You want your insurance policy to cover the replacement value of the asset, like a car or a house. Translating this to your rainy day fund, you want to save enough to cover all your expenses, not just the big things.

If you’re retired, you may want to keep as much as three to five years of living expenses in cash. This big cushion can help you ride out downturns in the market without having to draw from investments.

In either case, this is already a substantial sum. Does it make sense to pull even more of your assets out of higher-growth potential assets? Probably not. However, it can add meaning to your cash investment to rethink where you are holding it. There are likely better options if your savings account still pays near zero.

The Bottom Line

The beginning of 2023 is an excellent time to plan your goals; rather they are financial, personal, career, etc. Your financial planning goals and investment goals usually need fine-tuning after a length of time. It’s vital to ensure that it keeps up with life changes.


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All written content on this site is for information purposes only. Diversification and any strategy that may be discussed do not guarantee against investment losses but are intended to help manage risk and return. Opinions expressed herein are solely those of CWM unless otherwise specifically cited. The material presented is believed to be from reliable sources, and our firm makes no representations of another party’s informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant, or legal counsel before implementation.

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