How to Financially Prepare for 2022

The end of the year isn’t just for holiday shopping and New Year’s resolutions. It’s also an ideal time to take stock of your financial life and plan ahead for the coming year. Financial wellness has many layers but the idea is to live comfortably today while putting yourself in the best position to meet your long-term goals. It’s something that requires a mix of forward thinking and strategic planning.

As 2021 winds down, there’s no time like the present for a financial check-up. Here are some key points to consider when mapping out your game plan for the new year.

Pay Attention to the Economic Forecast

The pandemic disrupted economic conditions at home and abroad. While it’s impossible to guess exactly what lies ahead in 2022, economists predict that potential new Covid-19 variants could continue to impact markets. Case in point: the Dow Jones tumbled more than 1,500 points in late November after the Omicron variant emerged before bouncing back in December. What’s more, new variants could potentially slow down spending in the hospitality, leisure and tourism sectors, particularly among the elderly and families that have children who are too young to be vaccinated. If factories subsequently shut down in China and Southeast Asia, that could also exacerbate supply chain issues, which are starting to show signs of easing. These factors could all lend themselves to market volatility next year. In light of the Omicron variant, Goldman Sachs cut its 2022 U.S. economic growth outlook to 3.8% (originally 4.2%).

Inflation will likely be another economic challenge in the new year. According to the most recent numbers from the Bureau of Labor Statistics, the consumer price index reflects a 6.8% jump from November 2020 to November 2021. Meanwhile, the Federal Reserve announced last week that it plans to accelerate the phaseout of its bond-buying program, and pave the way for three interest rate hikes by the end of 2022 in order to fight inflation. This would, in turn, increase the cost of borrowing money. It could also spur market volatility.

The outlook may not be all doom and gloom, though. There are positive signs that the economy is improving. Unemployment is continuing on a downward trend, falling to 4.2% in November. That is a historically low level, though still above the pre-pandemic jobless rate of 3.5%. The U.S. also created close to 1 million more jobs than expected from January to October. And while November payrolls growth left something to be desired, those numbers could be revised much higher when all is said and done.

We will take a deeper dive into the economic forecast for 2022 in our upcoming Market Outlook presentation in January. Stay tuned for more details.

Think About Rebalancing Your Portfolio

Given the continuing economic uncertainty, now is an ideal time to evaluate your investment portfolio, which may have been thrown off balance since the beginning of 2021. Market activity can cause asset classes to fluctuate in value. Rebalancing allows you to make necessary adjustments so that your portfolio is aligned with your retirement vision, risk tolerance and goals. In the end, a balanced portfolio may be better prepared to weather unexpected market dips.

Diversification is key as it spreads out your investments across different asset classes. This typically includes stocks, bonds, alternatives, and other securities in a variety of sectors. Diversification is meant to help investors mitigate risk, navigate market volatility and position themselves for long-term returns, but nothing is ever guaranteed. The right asset allocation for you depends on your unique financial situation and risk tolerance. An experienced financial advisor can help create the optimal investment mix that’s appropriate for your goals.

Get Your Financial Ducks in a Row for 2022

Consider the above recommendations as a jumping-off point. Opal’s Year-End Financial Checklist provides a more in-depth look at steps you can take to increase your financial wellness in 2022. This includes:

  • Optimizing your tax efficiency
  • Shoring up your retirement plan and nest egg
  • Evaluating your emergency fund
  • Revisiting your insurance policies
  • Updating your estate plan

The end of the year is a great time to reflect on your financial health so that you can make a fresh start moving forward. At Opal Wealth Advisors, we understand the importance of crafting a wealth management plan that’s tailored to you. Connect with an advisor today to get your financial house in order for 2022.

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