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 1. Individuals
 2. Build Your Knowledge
 3. January economic outlook: What’s in store for your 2023 money goals?




JANUARY ECONOMIC OUTLOOK: WHAT’S IN STORE FOR YOUR 2023 MONEY GOALS?


QUICK TAKEAWAYS

 * Self-fulfilling prophecies are hard at work when it comes to people’s
   economic outlooks. But data may be telling us a different story—one of
   resilience.
 * There might not be a clear economic forecast for a while. Too many unique
   events are happening at the same time that don’t have precedent. Even so,
   it’s possible to pressure test how you react when faced with that
   uncertainty.

It’s January, the time of resolutions.

The economy, of course, can’t make any resolutions; it’s just data and decisions
and emotions jumbled together, sometimes delivering outcomes we like, sometimes
delivering a whole lot of ambiguity. You, of course, can make some resolutions
about how you feel about and react to the economic news. A few things are worth
watching and thinking about.


ECONOMIC RESOLUTION NO. 1: DEFINE WHAT VOLATILITY MEANS TO YOU.

How many headlines have you read over the last year that described the bottom
falling out of the market? A lot, probably. Sure, the market has ebbed and
flowed. But what does “the bottom falling out” mean, exactly?

“Today's news, and how we are inundated with messaging all the time, has some
people reacting quickly—and sometimes a bit emotionally—to movement in the stock
market,” says Heather Winston, director of individual solutions at Principal®.
“Yet the reality for most individuals is that these short jerks up and down may
have no bearing on achieving long-term goals as long as you don't sell. We have
to remind ourselves that it's time in the market, not timing the market, that
will lead to more success.”

Take, for example, the Dow Jones Industrial Average in 2022. How do you feel it
performed? Probably not well. But actually the Dow Jones, which began the year
around 36,000, was hovering above 33,000 by end of December—about a 8% loss in a
very messy, very chaotic year.1

“There are all these negative inputs, and that creates a shifting perspective
that sometimes isn’t grounded in what’s actually happening,” Winston says. “But
we can't always recognize this in ourselves when it's happening, primarily
because behavioral finance tells us that we will always feel the pain of loss
more than the benefit of gain.”

As 2023 progresses, it’s helpful to remember that personal finance experts pay
attention to a lot more than just the Dow. The CBOE Volatility Index, for
example, is something that Winston checks in on regularly. It's a measure of the
expectation of near-term—i.e., the next 30 days—volatility and is one way of
understanding how investors may feel. In general, the lower it goes, the better
the S&P 500 usually performs. At the tail end of 2022, it was trending downward.

Your wallet: How do you define volatility in the markets? If you can set your
own expectations, not defined by headlines, then perhaps in 2023 short-term
shifts won’t worry you as much. One concrete strategy to protect yourself from
volatility in all its forms is aligning your investment risk approach with
diversification of your assets. That’s something you can do on any day, at any
time.


ECONOMIC RESOLUTION NO. 2: FOCUS ON A WELL-ROUNDED ECONOMIC PICTURE.

Have you heard of a self-fulfilling prophecy? It’s the idea that what you (or
others) expect in turn influences how you act or behave, thus leading to an
outcome—a feedback loop, if you will. Even though self-fulfilling prophecies are
based on feelings, not data, they’re surprisingly influential when it comes to
the economy.

For example, by objective measures, the economy might be described as messy and
weird, but it’s certainly not bad. Unemployment is below 4%. Real gross domestic
product grew nearly 3% in the third quarter of 2022.2 Personal income also grew
in 2022.3 Consumer prices might just be ready to slow down, too, with gas prices
at one point in December at their lowest since February 2022.4 High inflation
and increased interest rates certainly impact a lot of people, causing real
pain, but they’re not the only measures that matter, and not the only measures
that indicate a recession.

What will 2023 hold for all those gauges of economic health? Again, it’s helpful
to dig deeper into data points that don’t make the news but that others look to.
The Federal Reserve Bank of New York, for example, releases a lot of data- and
sentiment-driven information about the economy. That includes everything from a
Labor Market Survey about employment transitions and wages to a monthly Survey
of Consumer Expectations. While end-of-2022 data is certainly no sure thing for
what 2023 will bring, little was particularly alarming in November and
December—more of the same mixed signals.

Why is there value in checking out other reliable sources of information? “Risks
are always going to exist, but we can better set ourselves up for success by
thoughtfully responding to challenges or news as it comes,” Winston says. In
2023, the data points may be a mixed bag, but they’ll also help you know whether
a headline wants you just to react and click, not pause and evaluate.

Your wallet: Inflation has caused many people to reprioritize, from the labels
they’re grabbing off the grocery store shelves to the plans they’re making until
prices ebb a little. What financial priority did you wish you focused on for
2022, and how can that influence your money goals for 2023? “Think about
something you really can be responsible for and committed to—not something
that’s outside your control,” Winston says.


WHAT'S NEXT?

 * Are your retirement savings a priority? If not, what’s one concrete goal you
   can set for them in the coming year? For example, if you’re expecting a tax
   refund, do you have the budget flexibility to add it to your retirement
   account? Log in to your Principal account to see how you’re doing. Don’t have
   an employer-sponsored retirement account? We can help you set up your own
   retirement savings.

1Yahoo Finance

2Bureau of Economic Analysis

3Bureau of Economic Analysis

4YCharts

The views and opinions expressed are for informational and educational purposes
only as of the date noted and should not be considered investment advice. No
forecast based on the opinions expressed can be guaranteed and may be subject to
change without notice. No investment strategy, such as diversification, can
guarantee profit or protect against loss.

Investment advisory products offered through Principal Advised Services, LLC.
Principal Advised Services is a member of the Principal Financial Group®, Des
Moines, IA 50392.

Insurance products and plan administrative services provided through Principal
Life Insurance Company®, Securities offered through Principal Securities, Inc.,
member SIPC and/or independent broker-dealers. Investment advisory products
offered through Principal Advised Services, LLC.

©2022 Principal Financial Services, Inc.

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