WHAT A DIFFERENCE a year makes. Cast your mind back to the start of 2022. The outlook seemed rosy. The talk was of the Roaring Twenties, the great reopening of retail, and getting back to normal. All the pent-up savings that had been done during the long months of Covid lockdown would power a burst of economic growth.

There was optimism in the air. Inflation was no more than transitory, and when businesses reconnected with their global supply chains as the world re-opened, things would quickly settle down.

The first signs that it wasn’t panning out that way were in the stock market, which fell nearly 4% in January. Then came the war in Ukraine in February. In March, the US Federal Reserve announced the first of (so far) six interest rate rises this year.

By the end of the first quarter, we were on a very different path. Put simply, inflation – and the interest rate rises it has prompted – are at the heart of most economic news this year.

The housing market, it’s driven by rising mortgage rates. In the once-invincible technology sector, inflation has caused large falls in share prices, and ultimately layoffs in the Irish job market. In a world of rising interest rates, the promise of great profits far in the future is worth less in today’s terms, so tech companies have fallen out of fashion.

In the wider economy, it has reduced profits, raised the prospect of power blackouts, and prompted wage demands, strikes and civil unrest in many countries. Many major stock markets are down more than 15 per cent from their peaks at the start of the year.

What’s worse, bond markets also fell in 2022. Bonds should be boring, and a safe place to put your money when stock markets are under pressure. They are governed by an iron rule: as interest rates rise, bond prices fall.

The double whammy of bonds falling at the same time as shares meant that supposedly cautious investors were hit almost as hard as those who took what seemed like bigger risks and least enjoyed investment growth in 2020 and 2021.

Three reasons to be optimistic

So it might seem strange to call out some reasons for optimism in 2023 from an investor’s perspective. But investment markets spend their time focussing on the future, not the past. And there are some rays of light.

Firstly, the inflation bear is being slain. It’s not going to happen overnight, and there is no going back to the prices of 18 months ago. But it seems likely that in the US and Europe, inflation will fall from the 8-10 per cent range to a more manageable 4-6 per cent range in the foreseeable future.

Although the world economy is still growing the pace of that growth is reducing. More positively, businesses are adapting to the new environment. For example, fuel costs are falling in Europe as supply chains are re-routed and infrastructure such as liquified natural gas terminals are built to obtain energy from new sources as a result of Russia’s invasion of Ukraine.

Falling inflation will temper interest rate rises, reduce costs to consumers and businesses, and bring confidence back into the economy.

Secondly, company valuations have fallen and in many cases are now in line with or below historic averages. Amazon shares, for example, are now at the same price as mid-2018.

Thirdly, China is finally unwinding its zero-Covid strategy, with major implications for its economy. One lesson we’ve learned over the last few years is that change affects us all in very different ways. So what does the 2023 outlook mean for you? Well, it depends on where you’re standing. Here are some examples – along with a suggestion for your personal finances in the year to come.

You’re saving for a house

One of the few assets to rise in value this year was housing. The CSO reports an annual house price increase of 10.8 per cent. But remember interest rate rises are only starting to bite, and with tech sector layoffs in the cities, some of the big money going into housing is drying up.

That’s a trend that could accelerate. While property prices move more slowly than the stock market, they are not immune to the trends of more expensive debt and less spending power.

If you’re not planning to buy for three years or more, consider investing the money to counter the impact inflation is having on your cash.

You always knew this was going to happen

There are plenty of people who sit out an investment market boom, waiting for the price to fall. If that’s you, well, there’s no doubt the investment markets are a lot cheaper now than they were a year ago. Good work. But will you continue to be a spectator, or have you got a plan you can act on in 2023?

We’d suggest now is a reasonable time to ease money into investment markets in a gradual way, taking advantage of some of the positive trends for the year ahead.

You’re mid-career and trying to get by

Things might seem a struggle right now, but in fact, some respite is coming. The government went out of its way in Budget 23 to send relief to this group. You’ll see childcare costs finally begin to fall in January, for example.

And while you might have seen the value of your pension erode this year, you have plenty of time to roll with the punches in investment markets – and you’re getting a substantial tax benefit anyway. Hold your nerve: there are over a hundred years of data to suggest values will recover before you’re drawing down your pension pot.

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You work for yourself

If you’re self-employed, there’s no doubt things have become more uncertain over recent months. It’s vital to make sure you have some financial resilience, rather than betting the farm on everything going as planned in your business.

In practical terms, that means building up other assets and protection besides your business. For most self-employed people, that should cash savings, life assurance, investments, and in particular a pension, which can be very attractive if you work for yourself.

You’re looking towards retirement

If you are approaching retirement in the next five years, it’s time to pay extra attention to your pension. The choices you make now can make a serious difference to your wealth in retirement. If you haven’t heard from your pension advisor in a year as we’ve just had, it’s worth asking just what they are doing to manage your money.

The best approach is to gather the facts on where your pension is invested and what it’s worth and speak to someone who can help you optimise it for tomorrow’s investment markets and the next phase of your financial life.

You put your life savings in cryptocurrencies

Oh dear. If the real world has been a hostile place in 2022, spare a thought for those inhabiting the world of digital currencies. Crypto, it turns out, was not a defence against inflation.

In fact, it turned out to have a lot in common with the share price performance of big technology companies – with some extra scandal added in. In Euro terms, the price of Bitcoin is down around 65% since the start of January, for example. If you put your life savings in, you have lost a serious amount of value.

You may be tempted to ‘Hold on for Dear Life’ (HODL) but the true lesson here is that crypto has some unique risks to it. There are other ways to grow your money: make a New Year’s resolution to spread it around.

Ralph Benson is co-founder and head of financial advice at Moneycube.ie.