Many investors are wondering where to invest in 2023. Investing your money is a complicated task that requires careful consideration. However, there are some things you should know before investing in any type of asset or product.
Investing in 2023 can be a simple task if you have a financial advisor to guide you. Beyond having a clear profile as an investor, the key question that must be answered before investing any savings is: what type of asset would be most suitable for my current situation?
It’s worth highlighting that there are no certainties when it comes to investments. This year, at a macroeconomic level, it’s important to consider the interest rate hikes by both the Fed and the ECB.
This move is aimed at combating inflation even at the potential cost of a recession that remains elusive, as explained by Spectrum Markets. Notably, both the United States and Europe exhibit a more pronounced pause in growth, but even China has tapered its growth rate and now struggles with demographic uncertainties for the first time.
In the financial markets, the exuberance of 2021 gave rise to a downturn in 2022. It seems that the markets have, to a large extent, already factored in the prospects for 2023.
These declines have played a role in recalibrating the valuations of numerous companies and have also steered the bond market. In other words, fixed income is emerging as a genuine investment alternative for the first time in a considerable period.
Within this landscape, value-driven strategies appear poised to continue delivering favourable outcomes compared to growth-oriented strategies. Many companies have adjusted their prices, making them potentially enticing investment options.
Among the major trends, we will continue to see interest in everything related to sustainability and the environment. Sustainability has become a very popular concept in the last two years along with socially responsible investment. Companies will continue to use sustainability as a marketing resource, and the same goes for investment funds since recently many sustainability-themed funds have emerged.
Over the next decade, we will witness a transition from conventional cars to electric vehicles. This will obviously increase the consumption of electricity, and since nuclear energy is quite unpopular, it would be interesting to analyse to what extent renewable energies will be able to sustain the supply in the future.
The Ukraine War has slightly changed the focus in the energy sector, which was the best-performing sector in 2022 and will continue to maintain its prominence in 2023. European economies have seen the dangers of energy dependence on external sources and are looking for alternative sources of energy, which can lead to a temporary recovery of coal and rethink the future of nuclear energy.
Furthermore, the trajectory of OPEC’s actions throughout 2023 remains uncertain, particularly whether the organisation will persist with production cuts to stabilise prices.
These are the trends that will mark the economic situation in 2023, yet your primary concern likely centres on a different question: where to invest in 2023?
Before proceeding, it’s worth noting that it is impossible to accurately predict the future. Investments always carry risks, which is why it’s important to do your due diligence before risking any hard-earned cash. Also, a robust risk management strategy and diversification are some of the key concepts to consider before investing.
Where to invest in 2023?
Let’s review the main assets or investment vehicles available on the market and how these may perform this year.
Savings accounts are some of the most popular options for beginners. This year, many banks offer around 5% interest on these accounts. However, factoring in the inflation, this rate of return may be unsatisfactory for many investors.
The stock market is always at the forefront when it comes to the investment world. If you are considering buying stocks, make sure you craft a detailed strategy, only invest with money you can afford to lose, and select your stocks carefully and after thorough research.
In addition, you must be able to tolerate volatility in your portfolio. This doesn’t necessarily means you will lose money – a well-picked, healthy company should be able to withstand a recession.
Here are some examples of potentially recession-proof sectors:
- Energy stocks: These companies will continue to benefit from the energy crisis.
- Banking: Equipped with stronger solvency ratios, elevated interest rates, and better capitalisation than they were in 2008, the banking sector confronts the crisis with greater resilience.
- Infrastructure and real estate sector: These companies are likely to remain promising regardless of the economic cycle.
- Pharmaceutical and medical sector: This is likely to continue to benefit from the global demographic shift.
- Sustainable companies: these may consist of newer trends, such as renewable energies.
- Stocks with moats (companies with a competitive edge).
It’s anticipated that in 2023, the momentum will favour a preference for value-oriented options over growth, as a broad strategy.
Companies affiliated with raw materials emerged as bright spots following a decade that had been largely adverse.
If you’re seeking specific stock ideas, here’s a starting point:
|IG Broker||Admirals Broker|
|International Airlines Consolidated Group (Iberia) SA||ASML Holdings (ASML)|
|Iberdrola SA||LVMH (LVMH)|
|Repsol SA||UnitedHealth Group (UNH)|
|Inditex SA||Amazon (AMZN)|
|Volkswagen AG (Pfd)||Endesa (ELE)|
To get started with stock investing, have a look at:
- Best brokers for beginners
- Best commission-free brokers
- Best dividend stocks
- Stock market for beginners
Currencies or Forex
By the end of this year, the market participants expect a few interest rate cuts by the Fed. In the first half of the year, the dollar has been stumbling and reached a one-year low as the inflation eased in June.
As in 2022, this year will again be marked by volatility due to fluctuations in interest rates and geopolitical tensions.
A CFD or Contract for Difference is a contract in which two parties agree to exchange the difference between the entry price and the exit price of the underlying asset of the CFD.
This type of trading has become hugely popular, as it allows you to take advantage of the price variations of a wide variety of assets traded with CFD (stocks, indices, commodities, forex, and more) without actually owning the underlying asset.
Futures and options
Futures and options are financial instruments used in a variety of strategies. For instance, they can be used for hedging.
Essentially, a future is a buy or sell contract in which the parties are obligated to buy and sell at a future date, and at a predetermined price. Options, on the other hand, offer the right but not the obligation to buy or sell. While these instruments carry high risk, you can start by learning the basics of futures trading and options trading.
Here is a short summary of options and futures:
|You have the obligation to buy or sell in the future||Buying or selling is not mandatory, it is an option (only if you are not the writer of the option)|
|The price is predetermined||You must pay a premium for the option|
|Daily settlement||Settlement on contract date|
|The losses could be unlimited||Losses limited to the premium (only if you are not the writer of the option)|
Cryptocurrencies have experienced a real roller coaster in 2021 and 2022. In 2023, the crypto market has slightly recovered, but the future remains uncertain due to the regulatory crackdown on crypto exchanges.
This asset type has gained quite a bit of popularity in recent years, however, it carries a lot of risk, so caution should be exercised. For example, the bankruptcies of BlockFi, Celsuis, FTX and now Genesis left the sector very vulnerable. All of them are related to the falls in the value of crypto assets.
What can you expect from cryptocurrencies in 2023? The consensus is that the crypto winter will last throughout the year, although much of the evolution of the sector will depend on what happens with the real economy.
Where to invest in investment funds
Buying shares or other assets directly is not the only option for investing in 2023. There are many types of funds:
Perhaps the first decision you should make is whether you want to invest in an index fund or an ETF.
The advantage of funds is that there will be a team of professionals responsible for executing strategies. However, it is important to be prudent in how to choose an investment fund, since not all funds fit our risk profile and preferences:
- How to choose an ETF
- Best ETFs
- Best ETFs for investing in NASDAQ 100
- Best ETF brokers
- Most successful Vanguard ETFs
Funds by asset class
According to asset class, funds can be classified as fixed-income funds, equity funds, and mixed funds. You can choose among these based on your risk tolerance and return objectives.
In 2023, fixed-income funds could be a good choice, while equity funds could help you diversify your portfolio and weather the storm.
Investors who have a certain interest in certain geographical areas, sectors, or companies that incorporate specific ethical practices have access to thematic funds that fit their tastes and offer good returns.
For example, if you want to invest in Asia, large caps, or in the biotechnology sector, there is a wide range of funds to choose from.
If you are interested in sustainability, which has become a very popular topic, there is a wide range of related funds in the market. In fact, socially responsible investment will continue to be a trend in 2023.
eToro is one of the few brokers in the UK that offers access to a very wide range of funds and ready-made portfolios on a variety of themes. Have a look at this eToro review to learn more.
Passive management or active management?
Typically, index funds are passively managed – they are made to replicate an existing index and track its performance. Hence, you cannot earn more or less than the general market.
On the other hand, actively managed funds aim to outperform the market. They use different strategies, detailed in the fund’s prospectus, to achieve specific objectives. While these may come with higher returns, their risks and costs are also higher.
It’s worth noting that both mutual funds and exchange-traded funds (ETFs) can be either passively or actively managed. The shared characteristic is that they both invest in a basket of assets, which helps to diversify one’s portfolio.
Where to invest in ISAs
If you invest in an ISA (Individual Savings Account), you don’t need to pay capital gains tax on your investment. Keep in mind that, for 2023-2024, there is a £20,000 limit for investing in ISAs.
Interactive Brokers is one of the few options available in the UK and it has a wide range of assets to choose from. Have a look at this Interactive Brokers review to find out more about benefits, tools, and costs.
Fixed-income investments, such as bonds, have long been a favoured asset among many investors. Whether you want to invest in domestic bonds or US bonds, there are a few options to choose from and the profitability depends on the quality of the debt, term, and the issuing entity.
Check out the best fixed-income brokers to get started!
Raw materials or commodities
Investing in raw materials, known as commodities involves materials or natural resources used in various production activities, for example, oil, gold, wheat, corn, or coffee.
The main difference compared to other goods is the fact that commodities are standardised. This means that it does not matter who or where the raw material is manufactured: the units of the product will have, more or less, the same quality and price. Therefore, 500 grams of sugar would have the same value if it is produced in India, Brazil or Thailand.
What types of raw materials are used in trading? In general terms, the raw materials that are extracted, cultivated, or produced.
Investing in real estate
Real estate is one of the most attractive sectors. It keeps up with inflation and, no matter the economic cycle, people always need housing. Hence, it’s a popular choice among savvy investors.
In any case, investing in housing is still a good way to generate income and protect against inflation, since the price of housing tends to capture quite well the increase in prices.
Remember that beyond direct investment in housing, you can invest in the real estate sector through stocks, REITs, and other assets.
Investing according to the geographical area
Many investors prefer to invest in domestic assets. In some cases, this saves a lot of money as foreign investments can be double-taxed. Here are some ways of getting started:
- Learn about stock exchange hours
- Choose one of the best brokers for beginners or the best commission-free brokers
- Create and test your trading strategy by learning about money management, the best trading books, and technical analysis
While investing in the UK could be a great strategy, diversifying your portfolio with foreign assets could help you achieve higher returns.
While there are many considerations when investing abroad, such as currency exchange rate, additional tax or fees, foreign assets may come with high returns. For instance, some prefer investing in the US market, such as choosing dividend kings or one of the most successful Vanguard ETFs.
Have a look at this quick guide to global stock indices to learn about the most important markets in the world.
The traditional asset classes are cash, fixed income, and equities. Alternative investments are quite popular nowadays because they are often associated with higher returns.
Overall, alternative investments are very broad and include funds, commodities, private equity or venture capital, real estate, and many more. Other types of alternative investments include:
- Stamps or coins
- Liquors such as wine or whisky
Summary: where to invest in 2023?
It is important to mention that you should always stay up to date with the latest market developments, as it is dynamic and subject to constant changes. What is valid today may change unpredictably in the future. Planning an investment strategy is essential to mitigate risks and be successful. If it is difficult to define a strategy, opting for a financial advisor or a robo advisor can be one of the alternatives.
What are some key principles to consider when investing in 2023?
Investing in 2023 requires adherence to fundamental principles. First, invest in areas you understand well. Second, allocate funds you can afford to lose, while maintaining an emergency reserve. Lastly, brace for portfolio volatility and recognise that financially sound companies can endure economic downturns.
Which sectors are anticipated to perform well in 2023?
Several sectors show promise. Energy companies stand to benefit from the ongoing energy crisis. Infrastructure, real estate, pharmaceuticals, medical sectors, and sustainable companies are also poised for growth.
What lessons can be gleaned from 2022’s market trends?
In 2022, stocks of growth and technology companies with inflated valuations faced setbacks. The trend for 2023 favours a preference for value-oriented stocks over growth. Additionally, companies tied to raw materials showed resilience, suggesting the importance of diversification.