Financial Advisors Share 4 Essential Money Strategies for an Unstable Economy

Although the new year has started off well by most measures, economists and business leaders are predicting that the market and economy will face tougher times ahead.

So far this year, the S&P 500 and Dow Jones Industrial Average have both gained around 4%, while the Nasdaq Composite has risen by 5.9%.

Inflation is still a problem, even though prices have cooled slightly. The consumer price index for December showed prices were 0.1% lower than the month before, but they were still 6.5% higher than a year ago.

"Although we are seeing some relief from inflationary pressures, this doesn't mean that the Federal Reserve's job is done," said Bankrate.com's chief financial analyst Greg McBride. "There is still a long way to go in terms of reaching our 2% inflation target."

Even as the Fed's battle with inflation appears to be successful, it will come at the cost of a recession, according to a survey of chief financial officers conducted by CNBC. Economists have been forecasting a recession for months, and most see it starting in the early part of the year.

Individual taxpayers can begin filing their taxes on January 23, according to the IRS. Inflation can have a significant impact on retirement finances, with the cost of living rising over time. Life expectancy is another important factor to consider when planning for retirement, as people are living longer than ever before.

To take advantage of the current climate, advisors recommend a few key money moves in the year ahead.

1.    Diversify your portfolio.

2. Stay disciplined with your investment strategy.

3. Stay informed about market conditions.

4.    Have a plan for dealing with market volatility.

According to David Peters, a financial advisor and certified public accountant at CFO Capital Management in Richmond, Va., now is a great time to pay down some of those higher interest loans outstanding.

The average credit card rate is now more than 19%, an all-time high. These rates are expected to continue climbing as the Federal Reserve raises its benchmark interest rate.

Peters said that for a long time, people have been spoiled by the markets. In some cases, it used to make financial sense to borrow money for a larger purchase, rather than withdrawing money from a savings or investment account. Now, however, people need to reverse their way of thinking.

He said that if you have a loan with an interest rate of 6% and you pay the principal down on the loan, it is almost the same as getting a 6% return on your money in the markets.

If you currently have credit card debt, McBride advises taking advantage of zero-percent or low-rate balance transfer offers. Cards offering 15, 18 and even 21 months with no interest on transferred balances are still widely available, he said.

Peters recommends setting some money aside in a separate savings account for emergency expenses once you’ve paid down your debt.

He said that online savings accounts can be a way to earn money in times when other investments may not be returning well.

Although some of the top-yielding online high-yield savings accounts are now paying over 3.6%, according to DepositAccounts.com, this still won't keep up with the rising cost of living.

Ted Jenkin, CEO of Atlanta-based Oxygen Financial and member of CNBC's Advisor Council, recommends buying short-term, relatively risk-free Treasury bonds and laddering them to ensure you earn the best rates. This strategy entails holding bonds to the end of their term.

He said that you are not going to lose your money, even though the return is not huge.

Another option for investing is to purchase federal I bonds. These bonds are inflation-protected and nearly risk-free, making them a great option for those looking to invest their money.

I bonds are currently paying 6.89% annual interest on new purchases through April. This is down from the 9.62% yearly rate offered from May through October 2022.

I bonds have a one-year holding period, and you will forfeit the last three months of interest if you cash them in before five years.

Peters said that once you’ve paid down high-interest credit card debt and set some money aside, putting more into your retirement accounts can be a great move.

You can defer $22,500 into your 401(k) for 2023, up from the $20,500 limit in 2022. The new provisions in "Secure 2.0" will further expand retirement-plan access and open up more opportunities to save going forward, Peters said. This includes making it easier for employers to make contributions to 401(k) plans on behalf of employees paying down student debt.

Even if you're balancing contributions with short-term goals, you should still contribute enough to take full advantage of company matches. This is like getting an additional return on your investment.

"If you're willing to take on additional risk, you might want to consider 'buying the dip' by looking at sectors that have taken a hit and could now be undervalued," said certified financial planner Bryan Kuderna. He's the founder of Kuderna Financial Team in Shrewsbury, NJ, and the author of the upcoming book, "What Should I Do with My Money?"

"The tech sector took a hit, with Amazon losing half its market value. If there is a further pullback, there may be an opportunity for investors."

Kuderna suggests dollar-cost averaging to help smooth out price fluctuations in the market. Investing at set intervals over time can also help you avoid emotional investing decisions.

However, Kuderna added that a long-term horizon is critical to this type of approach, which means being prepared to leave that money alone.

The best advice I can give is to not watch the market too closely. When people get emotional, they tend to make mistakes.