Chances are, this past year has been rough on your wallet. Many of us have experienced the rise in gas and food prices, and have felt other signs that the economy is on the verge of a recession.
Around 86 percent of CEOs anticipate a recession will hit in 2023, according to a recent global survey by KPMG. A recession is defined by the National Bureau of Economic Research as a significant decline in economic activity lasting more than a few months. The last recession ran from February 2020 to April 2020, according to the NBER.
“That info about CEOs is almost a self-fulfilling prophecy,” says Herb Hopwood, president of the Reston-based Hopwood Financial Services. “Because when they start talking like that, they’re setting themselves up for news that their business is likely going to slow down.”
Fix Your Money Matters
“What I encourage people to do is to make it personal,” Barry Glassman, founder and president of Vienna-based Glassman Wealth Services, says about financial management. “Because a recession is a nationwide measurement of production. If somebody keeps their job and owns their own home right now, a recession may not be as impactful to them. But if there’s no recession and somebody loses their job, it doesn’t matter that the country wasn’t in a recession. That family just experienced a recession.”
For the time being, Northern Virginians are enjoying a fairly healthy economy. But that doesn’t mean things can’t go south quickly. And whatever your current situation, the new year is the ideal time to take stock of your financial decisions and iron out your goals for the future.
“I would love to see more people at the beginning of each year ‘hire themselves’ for a day,” Glassman says. “They should work as hard on … organizing their own personal finances as they do for the companies they work for.”
The Right Expert
Your first step? Finding an investment adviser or a financial planner. The terms sound similar, but they perform different functions, although there are crossover responsibilities. An investment adviser provides advice about securities to their clients, according to the Financial Industry Regulatory Authority. This is a legal term that refers to an entity that is registered as such with either the Securities and Exchange Commission or a state securities regulator. Investment advisers can also be called asset managers, investment counselors, investment managers, portfolio managers, or wealth managers.
“My passion is the investment side,” says Hopwood, who considers himself a financial planner within his investment adviser capacity. “But the planning is the most important. What we call wealth management is the marriage of investment management and financial planning. I will tell you there is no one that I deal with, and our firm deals with, that is employing us for investment management that we don’t [also] do planning for.”
A financial planner works with clients to help them manage their money and reach their long-term financial goals, according to Investopedia. They may specialize in tax planning, asset allocation, risk management, retirement planning, or estate planning.
“Hiring a financial planner feels confusing and expensive,” Glassman says. “But it shouldn’t be. There are all kinds of financial professionals who can help individual families. … You don’t have to be a multi-multi-millionaire to tap some financial advice.”
Dealing with Stressful Times
What is the top advice that these financial experts are giving clients right now? Hopwood tells his clients to be careful and not do something impulsive that wrecks their long-term plan. “Why do I say that? I believe [that for] the next five to 10 years in the investment environment, we’re going to have subdued returns,” he says. “I don’t think they’re going to be negative. So looking at that, we’re building a financial plan for somebody using projections assumptions. We’re going to assume rates of return on investment of, depending on the allocation, 4 percent to 6 percent. I think inflation will stay higher for longer, but I don’t think it’s going to stay at the current level. I just don’t think that’s possible. Because if it does, then we’ve got bigger problems.”
Hopwood says he tells clients to think of their top three goals, and then rank them. “If the goal is to make sure that your 5-year-old and your 3-year-old kids can go to Harvard, and you’re working for the government, you might have to work a little longer,” he says. “But you’re making that decision, as opposed to the decision [to retire] at a certain age.”
Hopwood says he advises clients to create a balance sheet in January. “[It] doesn’t have to be really, really detailed. But you want to know, ‘What do I own?’ Try to put it into categories like cash, retirement accounts, investment accounts, house. And then you’ve got personal stuff, like cars.”
He says that safe investments in these times are treasury bonds and certificates of deposit. “I’m not averse to bond funds, assuming you’re not what I would call a yield junkie, which is when you’re reaching for too much yield. And a year like this year, that’s not a good idea in my mind.”
Financial planner Lisa Kirchenbauer, founder and president at Omega Wealth Management in Arlington, says she meets with clients at the beginning and middle of the year. “At the beginning of the year, we certainly want to check in and recap the prior year,” she says. “But also really focus on their personal and financial goals for the year. We … can brainstorm with them about how they might achieve those goals. But really, we want to get an understanding of where they’re trying to go for the year financially, and also be on top of possible tax-planning strategies.”
At the start of the year, Kirchenbauer’s firm also runs updated financial planning numbers to help clients see if they are going to be OK for retirement. “That’s so if we need to make a big course correction, it can be done,” she says. “We want to be careful about not overcorrecting. Like if the markets are down and the numbers aren’t going to look as good, we don’t want people to panic and completely overhaul their situation. But we want to be tracking it because most clients want to know, ‘How am I doing?’ They want to know how they’re progressing. ‘Am I saving enough? Do I need to make any changes?’”
She says that they normally make adjustments for inflation in January. But don’t over-index on inflation, she adds. “Is inflation something you should worry about? Sure. It’s something we all need to pay attention to in terms of cash flow. I think when it comes to longer-term planning, we need to be careful to not over-focus on that.
“Most of us are planning for 20, or 30, or even 40 years into the future,” Kirchenbauer says. “And at this point, I don’t think we’re expecting that inflation is going to stay where it is for a decade or two decades, in which case you [would] really have to change a lot of what you’re doing on the planning side.”
The midyear meeting is more of a check-in. “We’re certainly checking in on the portfolio,” says Kirchenbauer. “We’re looking at any sort of year-end planning actions, tax-planning actions that they should take. … It’s important to have that second check-in to make sure that the clients are getting [an] accountability partner: Are they on track for their goals?”
New Year, New Financial Habits
Glassman says it pays to approach financial planning with the same care you might take to plan your dream vacation. “[Start by] taking a look at your tax return and understanding more about it. Looking at your insurance, both health and life, but really the liability stuff, such as [your] auto policy,” he says. “And it really shouldn’t take that much time just to outline what’s there, and to have a follow-up conversation with a professional.”
Bottom line? January is usually the best time to make big changes, says Kirchenbauer. “At the beginning of the year, just like with a diet or exercise, that is probably the most energy you have around making those habit changes, like making sure you’re maximizing your retirement plan contributions,” she says.
This story originally ran in our January issue. For more stories like this, subscribe to our monthly magazine.