5 Big Things that Happened in 2023 So Far

Key Points – 5 Big Things that Have Happened in 2023 So Far

Congress Passed New Retirement Rules
Banking Institutions Are in Question
The Fed’s Fight with Inflation Continues
Rise of the Tech Giants
Is the Bond Market Coming Back?
7 Minutes to Read | 22 Minutes to Watch

5 Big Things that Happened in 2023 So Far

As we approach the midway point of 2023, it’s an opportune time to reflect on the significant events and changes that have unfolded in the financial landscape. Bud Kasper and Logan DeGraeve aim to provide a comprehensive review of key developments, focusing on topics relevant to investors in this episode of America’s Wealth Management Show. From updates on new legislation to the Federal Reserve’s rate hikes and market dynamics, we’ll delve into the implications of these events and discuss future considerations. Let’s dive into the substantial shifts and noteworthy occurrences that have shaped the financial world in 2023.

1. SECURE 2.0 Went into Effect

One of the biggest things to happen at the beginning of 2023 was SECURE 2.0 going into effect on January 1, 2023, after it was passed by Congress in late 2022. It brought about some key changes to the retirement planning landscape. One notable update is the increase in the Required Minimum Distribution (RMD) age to 73. This means that individuals can delay mandatory withdrawals from their IRAs until they reach the age of 73. Additionally, there have been updates related to the Roth match from employers and the ability to convert 529 plans to Roth IRAs. These changes provide consumers with more options for retirement planning and tax management, empowering them to make informed decisions about their financial future.

Don’t Forget About the SECURE Act

If you have been listening to Dean and Bud for the past few years, you know that IRAs are bad for wealth transfer after the introduction of the SECURE Act. It mandated that beneficiaries must withdraw the inherited money within a 10-year period and pay taxes on it. The effectiveness of IRAs for wealth transfer largely depends on various factors, such as the intended recipients—be it children, grandchildren, or charities. To avoid potential tax burdens, it is recommended to consider Roth conversions and explore the benefits of saving to a Roth IRA. Talk to a qualified financial advisor to better understand your situation.

“The reality here is making sure that we are doing everything the right way with IRA rules.” – Logan DeGreave

2. Banking Failures and Ensuring Financial Stability

Unfortunately, 2023 has also seen its fair share of banking failures, with regional banks like SVB, Signature Bank, and First Republic failing in the first and second quarters. The failures raised concerns reminiscent of the 2007-2008 financial crisis. So, you can imagine why this would fall onto our list of big things that have happened in 2023 so far. In Silicon Valley Bank’s case, the mismanagement and investment in long-term bonds resulted in losses as bond values declined throughout 2022.

“SVB had all these deposits and they invested in intermediate and long-term bonds. Those bonds, you know, the values could have fallen on 10-plus percent in 2022. The Bond aggregate was down about 13%.” – Logan DeGreave

While some financial institutions faced challenges, others like JPMorgan maintained stability. These failures have highlighted the importance of ensuring financial stability and the need for robust risk management practices within the banking sector. For investors, these incidents serve as a reminder to assess the soundness of their chosen banking institutions.

3. Federal Reserve’s Rate Hikes and Inflation Battle

The actions of the Federal Reserve have played a crucial role in shaping the economy and financial markets in 2023. In March 2022, the Federal Reserve began raising interest rates by half a point, aiming to combat inflation and achieve a 2% target. However, the use of the term “transitory” by the Federal Reserve suggested that these rate hikes would be temporary. Since then, there have been several adjustments in the Fed funds rate, ranging from a quarter to three-quarters of a point.

Recently, the Federal Reserve has pressed pause on further rate hikes to assess the impact of these changes on inflation. This cautious approach aims to determine the effectiveness of the measures in curbing inflationary pressures. As consumers and investors, we eagerly await the outcomes of these actions, which will be revealed in the coming months. It is essential to stay informed and adapt our financial strategies accordingly.

4. Market Concentration and the Dominance of Tech Giants

While it’s a big deal that the stock market has happened generally perform well so far in 2023, concerns about market concentration have arisen. A handful of tech companies have been driving a significant portion of the market’s gains, leading to questions about the overall health of the market. Notably, seven companies—Alphabet, Apple, Meta, Microsoft, Nvidia, Amazon, and Tesla—have accounted for 26% of the S&P 500 returns in 2023.

While these tech giants have fueled impressive growth, it is important to recognize that relying heavily on a few companies for market returns can introduce volatility and potential risks. Diversification across various sectors and industries is crucial to ensure a well-balanced portfolio. A comprehensive assessment of the market’s health necessitates looking beyond the dominance of a few companies and considering broader market trends.

Rebalancing and Harvesting Gains: Strategies for Investors

Given the market’s performance in the first half of the year, it may be prudent for investors to consider rebalancing their portfolios. Taking advantage of gains in certain sectors, such as technology, could involve trimming positions and diversifying into other areas. Consulting with a financial planner or investment advisor is crucial for assessing individual situations and making informed decisions aligned with specific goals.

With the unpredictable nature of the market in the second half of the year, taking some profits and securing a portion of living expenses may provide stability and peace of mind.

“It depends on the client’s situation. But I think that you’ve been given a gift, at least so far, for the first six months. Take advantage of it.” – Logan DeGraeve

5. Bond Market Challenges and Opportunities

The bond market faced significant challenges last year as interest rates climbed higher. Rising rates typically lead to a decrease in bond prices, resulting in negative returns. In 2022, the bond aggregate was down approximately 13%, as noted when we discussed bank failures. However, in 2023, the bond market has shown signs of recovery, with returns ranging from 2.7% to 3%.

The upward trend in rates has provided opportunities for investors to consider short-term U.S. Treasuries and certificates of deposit (CDs) with attractive yields. With the possibility of an economic correction and increased market stability, having readily available funds can be advantageous. Investing in short-maturity instruments allows for flexibility and the ability to adapt to changing market conditions.

Navigating the Financial Landscape of 2023

As we reflect on the big things that have happened so far in 2023, it is evident that the year has been marked by notable developments and challenges in various financial areas. From the implications of the SECURE Act and SECURE Act 2.0 on IRAs and wealth transfer to the consequences of the Federal Reserve’s rate hikes and market dynamics, consumers and investors have experienced substantial shifts. Understanding these changes is crucial for making informed decisions about retirement planning, tax strategies, and overall financial well-being.

However, it’s important to remember that individual circumstances vary, and personalized advice from a CFP® Professional is invaluable. By staying informed, considering various investment strategies, and adapting to market conditions, individuals can navigate the financial landscape of 2023 with confidence. As the year progresses, remain vigilant and monitor developments to optimize financial outcomes and ensure a secure future.

For guidance and support considering the events of 2023, schedule a conversation with a CERTIFIED FINANCIAL PLANNER™ professional here. Let us help you make sense of the big things happening and ensure your financial well-being in these dynamic times.

5 Big Things that Have Happened in 2023 So Far| Watch Guide

00:00 – Introduction
00:46 – 1. SECURE 2.0 Went into Effect
06:32 – 2. Banking Failures
08:58 – 3. Federal Reserve’s Rate Hikes and Inflation Battle
12:38 – 4. Dominance of Tech Giants & Rebalancing Chances
17:31 – 5. Bond Market Challenges and Opportunities
20:00 – Other News

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.