In 2022, investors faced challenges as many witnessed a decline in their investment portfolios. If you were among those who experienced setbacks last year, there’s no need to fret; that chapter is behind us. It’s now time to shift our focus to the future and strategize for the most promising long-term investments in 2023.
However, let’s exercise prudence rather than recklessness, given the ongoing uncertainty in financial markets. Our goal is to strike the right balance that optimizes growth within our portfolios.
So, let’s delve into our first recommended asset: dividend stocks. These assets offer a unique advantage by combining regular cash payments, akin to bonds, with the growth potential found in individual stocks and stock funds. It’s akin to having your cake and eating it too. It’s crucial to remember that dividends received in taxable brokerage accounts are subject to taxation in the year they are received, unlike stocks that don’t pay dividends, which are primarily taxed upon sale.
Dividend stocks are versatile and cater to various investors, whether you’re a novice just starting out or a seasoned retiree. The specific type of dividend stock that suits you best depends on your stage in the investing journey. Young investors might want to explore dividend-growing stocks—companies with a track record of consistently increasing dividends over time. While these stocks may not currently offer exceptionally high yields, their potential for future rewards, especially when coupled with a dividend reinvestment plan, resembles that of high-growth stocks that do not pay dividends.
Conversely, older investors seeking stability or fixed income can consider stocks that consistently pay dividends. In this scenario, the goal may not be to reinvest the dividends but rather to utilize them as cash to support a fixed-income investment strategy.
To purchase dividend stocks, the most straightforward approach is through an online broker, which can provide access to a wide range of options.
Additionally, Certificates of Deposit, often referred to as CDs, function like specialized savings accounts backed by the government, offering a fixed interest rate over a specified period.
Certificates of Deposit (CDs) are an ideal choice for funds earmarked for specific future expenses. For instance, if you’re saving up for a down payment on a house or planning a lavish wedding, a CD could be the perfect financial tool for you.
CDs are available in various term lengths, such as one year, three years, or five years. This flexibility allows you to securely grow your money with a defined timeline in mind, making them a reliable option for achieving specific financial goals.
However, there’s an important caveat to consider: should you decide to withdraw your funds from a CD before its predetermined term expires, you may incur a penalty fee. To avoid this, it’s crucial to invest in a CD with funds you won’t require in the near future. Generally, the most favorable CD rates can be found at online banks and credit unions, which often offer attractive deals.
If you’re searching for reliable assets to invest in for 2023, CDs represent an excellent means of safely growing your money, ensuring it’s readily available when needed.
Now, let’s explore three real estate investment options. When contemplating real estate investments, the first scenario that might come to mind involves purchasing a property with the intention of selling it later for a substantial profit. Alternatively, you might envision owning property and generating rental income as a steady source of financial gain.
1. Real estate investors
One increasingly favored choice for real estate investment is to invest in Real Estate Investment Trusts (REITs). These are companies that own income-generating properties such as shopping malls, hotels, and office buildings.
What makes REITs attractive is that investors can receive regular dividend payments. It’s akin to enjoying a portion of the rental income without the responsibilities and concerns of being a landlord.
Another option that has gained significant popularity in recent years is real estate crowdfunding. In this approach, a group of investors pools their resources to collectively invest in various real estate projects.
Participating in real estate crowdfunding is akin to being part of a team, which allows for risk-sharing among a diverse group of individuals. Moreover, it provides the opportunity to invest in a range of real estate projects without the need to navigate the intricate details independently.
2. Real estate investing is best for people.
Real estate investment is most suitable for individuals who already possess a well-established investment portfolio and seek further diversification or are open to assuming a slightly higher level of risk for potentially greater returns. However, it’s crucial to bear in mind that real estate investments lack the liquidity of assets like stocks, meaning they can’t be easily converted into cash on short notice.
Therefore, it’s essential to avoid allocating funds to real estate that you might require immediate access to.
Investing in real estate often requires a long-term perspective. There are several avenues available to investors. Some REITs can be purchased on the stock market through online stock brokers, much like buying shares of a company. On the other hand, certain REITs are exclusively available in private markets.
Similarly, real estate crowdfunding platforms may have varying eligibility criteria, with some being open solely to accredited investors, while others have no such restrictions. The key is to find the investment approach that aligns best with your financial goals and circumstances.
3. Bond funds have two flavors.
Bond funds offer a convenient way to access a variety of bonds bundled together into a single investment package. Picture it as a diverse assortment of goodies, except in this case, it’s an assortment of bonds. Bond funds come in two main forms: mutual funds and Bond Exchange Traded Funds (ETFs).
Mutual funds and Bond ETFs both contain a mix of bonds from various issuers. They are typically categorized based on factors such as the type of bond, its duration, risk level, and the entity that issued it, whether a company, municipality, or government.
Bond funds are particularly appealing for individuals who seek a diversified bond portfolio without the complexities of analyzing and purchasing individual bonds. It’s akin to having a team of bond experts handle the intricacies on your behalf.
Another advantageous aspect of bond funds, especially Bond ETFs, is their accessibility to individual investors who may not have sufficient capital to buy a single bond, which can often require a minimum investment of around one thousand dollars. Bond ETFs often allow investors to participate with less than one hundred dollars, making it easier for more people to enter the bond market without substantial financial commitment.
Now, let’s delve into a discussion about the associated risks.
4. Corporate issuers
Government issuers, particularly the federal government, are generally considered highly secure, while corporate issuers can range from slightly less risky to significantly riskier in terms of potential rewards.
Investing in bonds is often viewed as a safer option, and when you invest in a bond fund, it becomes even more secure since a fund typically holds a diverse array of bonds from various issuers. This diversification minimizes the impact of one bond defaulting on the entire portfolio, similar to spreading your bets to mitigate risks and enhance potential returns.
Bonds typically offer lower yields compared to stocks, with annual returns typically ranging from around four to five percent. While government bonds may provide lower returns, they are also much less risky, making it a trade-off between risk and reward.
S&P 500 index funds are highly appealing as they are based on approximately 500 of the largest American companies, including giants like Amazon and Berkshire Hathaway. For investors seeking higher returns compared to traditional banking products or bonds, S&P 500 index funds can be an excellent alternative.
It’s worth noting that they come with increased volatility. Nevertheless, they are a suitable choice for beginner investors as they offer broad and diversified exposure to the stock market. It’s like enjoying a taste of the entire stock market buffet in terms of risk exposure.
S&P 500 funds are among the least risky ways to invest in stocks because they consist of top-market companies and provide a high level of diversification. Over time, the S&P 500 index has delivered an average annual return of approximately 10 percent. Additionally, these funds often feature low expense ratios, which are the fees charged by the management company to oversee the fund.
Alternative assets extend beyond traditional investments such as stocks and bonds. They encompass a range of options, including real estate, private equity, fractional ownership of real property, precious metals, cryptocurrencies, and more.
Experts suggest that the conventional 60:40 mix of stocks and bonds may no longer suffice. Hence, they recommend enhancing diversification by incorporating alternative investments into one’s portfolio. For instance, a portfolio might consist of 40 percent stocks, 30 percent bonds, and 30 percent alternative assets. Importantly, investing in alternative assets has become more accessible, including the ability to invest in them within tax-advantaged accounts.
However, it’s vital to exercise caution when delving into the world of alternative assets. While they offer significant profit potential, they also carry greater risks. Therefore, it’s prudent to limit investments in any single asset class. For example, if you allocate 10 percent of your portfolio to alternative assets, it’s advisable to diversify among five or more different types of alternative assets.
5. Money market accounts
Money market accounts offer several advantages, making them an attractive financial tool. They can be thought of as a close relative to savings accounts but with a few additional benefits, making them somewhat similar to Certificates of Deposit (CDs) or high-yield savings accounts.
One notable feature of money market accounts is that they are federally insured and accrue interest. What sets them apart is the flexibility they offer regarding withdrawals. Account holders can make up to six withdrawals per month, providing more accessibility compared to CDs.
Money market accounts are an excellent choice for individuals who prefer a lower level of risk while keeping their cash safe. They serve as a low-risk investment that still permits easy access to funds when needed. These accounts are particularly well-suited as a short-term savings option for goals such as purchasing a car or establishing an emergency fund.
So, if you’re seeking a secure place to park your cash and earn a modest interest rate without the complications of choosing individual investments, money market accounts can be a prudent choice. On another note, NASDAQ 100 index funds offer a fantastic way to participate in the success of major tech companies without the stress of selecting winners and losers or analyzing individual businesses.
6. 100 largest companies
A NASDAQ 100 Index Fund is essentially a collection of the 100 largest and most successful companies listed on the NASDAQ exchange. These companies are significant players in the tech industry, including giants like Apple, Google’s parent company, and Microsoft.
These funds are an excellent choice for investors who are seeking growth and are comfortable with a degree of volatility in their investments. It’s important to be prepared to hold onto the fund for at least three to five years to reap the potential benefits.
A helpful strategy when investing in such funds is called dollar cost averaging, which involves gradually investing funds over time. This method can mitigate risk compared to investing a lump sum all at once. Keep in mind that, like any publicly traded stock, the value of these companies can decrease, especially during market downturns, as many of them are highly valued.
On the positive side, investing in a NASDAQ 100 Index Fund offers immediate diversification, meaning your investment portfolio won’t be excessively affected by the underperformance of any single company.
Another advantage is that NASDAQ 100 index funds typically have low expense ratios. In simpler terms, they don’t charge much for you to own a piece of all the companies in the index, which can contribute to better overall returns.
When it comes to accessing these funds, you have a couple of options. NASDAQ 100 index funds are available in both exchange-traded funds (ETFs) and mutual funds, providing flexibility for different investment preferences.