Experts: 8 Worst Places To Keep Your Investments in 2023
There is no crystal ball when it comes to investments, and even the ostensibly safest investment vehicles contain some risk. Some options are downright dangerous, though, especially in an economy that appears to be on the brink of a recession.
If you have your money stored in any of the following places, you might want to seriously consider investing it elsewhere.
Meme stocks are the stocks of companies that are all the rage on social media platforms and conversations focused on retail investing. Prime examples include GameStop and AMC. They’re hip and trendy — but could be disastrous for investors.
“Meme stocks could potentially be among the least favorable investments in 2023,” said June Jia, owner of Canny Trading and a quantitative researcher at GF Securities. “Over the past couple of years, these stocks have experienced substantial price volatility and even short squeezes due to social media-driven speculation. This phenomenon allowed numerous investors to accumulate significant wealth in a short period. Consequently, many retail investors with limited knowledge of meme stocks have been lured into participating. Nevertheless, meme stocks tend to be overvalued because of market hype, resulting in distorted stock prices.”
Jia added that the surge in trading volumes for meme stocks was facilitated by the Federal Reserve’s accommodative monetary policy. She said this “supplied abundant liquidity for market speculation; however, these favorable conditions are diminishing as the Federal Reserve tightens its monetary policy.” Consequently, meme stocks may experience a decline in 2023.
Penny stocks are stocks that trade at very low prices and are often issued by small companies you may have never heard of before. They can be dubious investment vehicles.
“While some people believe they can make quick profits by investing in penny stocks, they are often highly speculative and volatile, and the companies behind them may be poorly managed or have questionable business practices,” said Percy Grunwald, a personal finance expert and the co-founder of Compare Banks.
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Investing in overvalued commodities is another possibly disastrous choice for investors this year as we see federal interest rates rise.
“Earlier, the Federal Reserve’s accommodative monetary policy contributed to notable inflation, prompting a sharp increase in commodity prices,” Jia said. “This trend enticed some investors to enter the market; however, as the Federal Reserve continues to raise interest rates, the demand for commodities is adversely impacted. Based on the principles of supply and demand, it is highly probable that commodity prices will decrease in 2023 as demand subsides, resulting in potential losses for investors who have recently adopted a bullish stance on commodities.”
The cryptocurrency Dogecoin has been making headlines off and on for the past couple of years, catalyzed by Elon Musk, who temporarily swapped out Twitter’s bird logo in favor of Dogecoin’s dog logo. People have flocked to pour real money into the trending crypto, which may have been a bad idea.
“The absolute worst place to keep your money right now is in speculative cryptocurrency, specifically Dogecoin,” said Nick Burgess of Making a Millennial Millionaire. “When you do this, you’re not investing in fundamentals. You’re investing in a community that could affect the price one way or another based on a tweet. In the stock market, we have ‘black swan effects’ that will rock a stock one way or another due to an unexpected change or shift. With Dogecoin, you’re stuffing your cash under the swan’s feathers, handing the swan to Elon Musk and hoping for the best. This isn’t an investment; it’s gambling.”
Cryptocurrency in General
Dogecoin is especially dodgy, but crypto in general is a risky investment.
“While some people have made significant profits by investing in cryptocurrencies like Bitcoin, they are also highly volatile and unpredictable,” Grunwald said. “The value of cryptocurrencies can fluctuate wildly based on a variety of factors, including regulatory changes, market sentiment and even social media trends.”
Real estate can be a great choice for investors interested in the long haul because it can be well hedged against inflation. But the real estate investment space is going through a rocky period because of high interest rates and a looming recession.
“From an investor perspective, real estate investors may need to adjust their strategies or be more selective in the properties they choose to invest in — and even consider selling their investment now — before it’s too late,” said Baruch Silvermann, financial expert and CEO of The Smart Investor. “The main reason is the high-interest rates. When interest rates are high, it becomes more expensive for people to borrow money from banks or other lending institutions. This can lead to a decrease in demand for real estate as potential buyers may not be able to afford the higher interest rates on their mortgages. As a result, the prices of real estate may drop as supply exceeds demand.”
Additionally, the likely looming recession could cause serious decline in the housing market.
“During a recession, people tend to have less money to spend, which can decrease demand for housing,” Silvermann said. “As a result, the prices of homes and other properties can decline. Additionally, during a recession, people may lose their jobs or face financial hardship, making it difficult for them to pay their mortgages. This can lead to an increase in foreclosures and a surplus of homes on the market, further driving down prices.”
A Single Big Company
Throwing all one’s investment money into mega corporations like Google, Amazon or Apple may seem like a fine idea given that these companies are so high performing, and we often hear stories about how rich we’d be if we’d invested funds in them years ago. However, investing only in one company isn’t the best strategy — especially if you’ll need to reap the rewards of your investments soon for your retirement.
“The volatility of the past few years has reinforced to us that even well-known global companies can experience strong double-digit declines which can be detrimental to your retirement plan if you are nearing the end of your working years,” said Jim Eutsler, CFP, ChFC, CMA, wealth advisor and partner at HCM Wealth Advisors. “A properly diversified portfolio will help decrease your company specific risk.”
Under Your Mattress (or Elsewhere in Your Home)
This isn’t an investment, technically, but keeping cash outside of banks and other investment vehicles is an increasingly common approach during times of anxiety over the solvency of banks — as we’re experiencing now due to the collapses of Silicon Valley Bank and Signature Bank, respectively. No matter where you keep your cash, don’t don’t keep it under your bed or in a safe. Invest it in some way.
“You are essentially losing money if you do not deposit your cash,” said James Rochester, CFO at CashBlog. “No matter how high the interest rate is, opening an interest-bearing account will naturally increase the value of your cash. A high-yield savings account will undoubtedly provide you with a greater return on your investment without exposing you to excessive risk. And in times of economic hardship, every dollar counts. If you are concerned that a bank could lose all of your hard-earned money due to a poor investment, keep in mind that the federal government insures accounts at most banks for up to $250,000 per account. As long as you choose a bank that is insured by the Federal Deposit Insurance Corporation, you shouldn’t have to worry about much.”
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