Trying to pick the one or two investments that will make you the most money in 2023 can feel like a fool’s errand. After all, if we fall into recession, as many predict, the economic landscape will be quite different than if the Federal Reserve stops raising rates, inflation retreats and the economy recovers strongly. Since no one can predict which scenario will play out over the next 12 months, it’s best to consider a variety of investments that collectively can provide you with income, safety and the potential for growth.
What Are the Best Investments for 2023?
If you’re on the lookout for investment opportunities, here’s a look at 13 of the best options you can consider for your portfolio.
Diversified Growth Stock Fund
In the current market environment, growth stocks have gotten hammered. If you can stick with a diversified stock fund that owns high-quality growth names, that investment is likely to bounce back over time. It’s entirely possible for growth stocks to have another down year, but there’s also a decent chance that they bounce back in the first half or even the first quarter of 2023. Diversifying via a mutual fund or ETF is a good way to lower your risk instead of betting everything on a single stock.
The Nasdaq composite index took the brunt of the bear market in 2022, dropping 33%. Typically, the Nasdaq, which is laden with some of the biggest names in technology, is more volatile than the broader market, which accounts in part for its larger loss in 2022 than the Dow Jones Industrial Average or the S&P 500 index. But if and when the Nasdaq bounces, it typically comes back hard and fast. If you can handle the volatility of the Nasdaq and you are risk-tolerant enough to own an index that can fall 33% or more in a single year, a Nasdaq-100 ETF could be a good moneymaker going forward.
S&P 500 ETF
The S&P 500 — like every other major market index — has never failed to come back from a bear market and make new all-time highs. Although past performance can’t predict future results, this is an enviable track record and makes an S&P 500 ETF investment a solid long-term bet. Recovery may not be complete in 2023, but over the long run, stocks tend to go up, not down, so buying when the index is down about 20% can be a good strategy.
High-Yield Savings Account
For more conservative investors, there’s rarely been a better time to keep your money in a high-yield savings account than now. With the Fed aggressively raising interest rates to keep inflation in check, high-yield savings yields have skyrocketed. Whereas rates on even the best high-yield savings accounts were about 0.50% in 2020, now you can find accounts paying 3.80% or even more. That’s a pretty high yield for an insured savings account, and a good place to hide if you’re worried about more stock market sell-offs in 2023.
Dividend Aristocrat Fund
In times of economic uncertainty, companies that pay high dividends tend to hold up better. To consistently pay a high dividend, a company needs a consistent revenue stream, and these are the types of businesses that investors value when the economy slows. Dividend aristocrats are companies that have increased their dividends for at least 25 years in a row. Owning a fund of dividend aristocrats is a good way to diversify your holdings, earn a solid income and protect yourself from the more volatile areas of the stock market.
Real Estate Investment Trust
Real estate investment trusts use investor funds to buy various types of property, managed by professionals, with the income passing through to shareholders. This can be a great way to get access to real estate without having to either manage it yourself or put up a massive down payment. Dividends are typically high and volatility is often less than the stock market overall, giving you a bit of a hedge if there’s another tough market year ahead in 2023.
To diversify your investments away from the stock and bond markets, a rental property might be a good choice for 2023. Although the housing market is softening, rents remain strong, and once interest rates and inflation begin to cool a bit, there may be more support for home prices as well. Rental properties can be a good long-term investment because you’ll receive a predictable income stream that will only rise over time, helping combat inflation. You may also benefit from long-term capital gains over time.
S&P 500 Losers in 2022
With a little research, you might be able to pick through the carnage wrought by 2022 and find some solid bounce-back candidates in a list of last year’s losers. While some stocks at the bottom of the S&P 500 in terms of 2022 performance have long-term structural problems, others may just be the victims of bad press, bad earnings or a number of factors that may prove to be temporary. You’ll want to work with a financial advisor to comb through the wreckage to pick solid bounce-back candidates, but you’ll likely find some in the worst S&P 500 performers in 2022.
S&P 500 Winners in 2022
If 2023 brings us more of what 2022 wrought, then the top performers from last year will likely continue to do well in the coming year. For starters, if the economic environment is similar, the same stocks that benefited from it in 2022 will likely enjoy more of the same. Secondly, investors tend to ride stock market winners. From a momentum perspective, the S&P 500 winners in 2022 may continue to thrive.
Value Stock Fund
Growth stocks fell out of favor in 2022, making value stocks the place you wanted to be. This trend may very well continue into 2023, as the times when value stocks outperform growth (or vice versa) tend to run in multiyear trends. If nothing else, value stocks will likely prove more defensive in 2023’s market, as investors seem reluctant to overpay for stocks with high valuations.
Short-Term Bond Fund
A short-term bond fund may not offer a huge amount of upside, but protecting you from the potential downside of the stock market may end up being the winning move for 2023 after all. Short-term bond funds provide a modest amount of income in exchange for the security of getting your money back at maturity.
Certificates of Deposit
Certificates of deposit can often pay more than high-yield savings accounts or even short-term bond funds, and they carry the same FDIC insurance. You will be locked into a certain period if you buy a CD, but many are sold with maturities of one year or less. Until the state of the economy and the market becomes more apparent in 2023, you may end up making more money by sitting and waiting in a high-paying CD, as CDs have seen increased yields thanks to the Fed’s campaign of increasing interest rates.
Dollar-cost averaging isn’t an investment, per se, but it’s a good strategy to help you make money in 2023. If you own stocks, many of them were likely down in 2022, and adding regular amounts every month to your portfolio will allow you to lower the long-term average cost of what you own by buying more shares when prices are low. As the future of the stock market is uncertain in 2023, consistently buying regular amounts can help protect you from any volatility in prices.
Information is accurate as of Jan. 2, 2023.