Where to invest your money in 2023? The last few years have been a rollercoaster for stock and bond investors. First, we had to deal with covid lockdowns and supply chain disruptions. Then came the war in Ukraine and the spike in oil prices, followed by record inflation in developing countries. Most recently, we experienced the second and third-largest bank collapse in US history, driven by the first digital bank run.
Market pundits have been calling for further Fed rate hikes, a recession, a hard landing, more bank failures, a decline in corporate earnings, and anything in between. Even the Fed jumped on the recession bandwagon and called for a mild recession at the end of 2023.
If you follow my articles, you know that I discussed the wide divergence of economists’ opinions of the direction of our economy.
Since the beginning of the year, I have been cautiously optimistic about the economy and the stock market in general. I have been leaning toward the soft-landing camp. Despite the negative rhetoric in the media, there are a lot of secular tailwinds that could support a resilient economy. I am not popping a campaign bottle here, but there is a good chance that the US economy will continue to chug along and avoid a severe outcome.
But in an environment where even experts cannot agree, it’s very challenging for regular folks to decide how to invest their money. Historically, the best time to invest is when everyone else runs for cover. That is why it’s essential that you understand your financial goals, investment horizon, and risk tolerance before making any investment decisions.
Here are some ideas on where to invest your money in 2023.
1. CDs and bonds
After a decade of zero interest rates, CDs and bonds finally pay decent yields. If you are a conservative investor or need to build up your cash savings, you can lock in juicy rates. At the time of this article (April 2023), many online FDIC-insured high-yield savings accounts are approaching 4% interest. You can also buy a money market fund paying 4.5%. You can often find a CD paying 5% annual interest. Indeed, there are more options to park your cash than a year ago.
Traditionally, healthcare has been a recession-resistant sector. Under normal circumstances, most people will prioritize their health over discretionary spending. Furthermore, our country is aging. Today, 1 out of 6 Americans is 65 years or older, representing 17% of the population. That number is expected to increase to 22% of the population by 2040. In an all-weather economy, healthcare companies offer a steady, reliable source of revenue and dividends.
3. Discount retailers and fast food
Discount retailers and fast-food restaurant chains will primarily benefit from a slowing economy. Even in weak economic conditions, people must shop and eat. Discount retailers offer bargains that are only sometimes available in large chains. Similarly, fast food (and fast casual) restaurant chains provide affordable meals. For more cautious investors, this group offers a safety net of predictable revenue streams and earnings.
Unfortunately, after the start of the Russian invasion of Ukraine, the world is becoming increasingly polarized. This tragic and prolonged conflict revealed significant gaps in the defense systems and military equipment of many NATO and EU countries. Furthermore, China is circling Taiwan while the Middle East and Africa look like a boiling pot ready to burst. As a result, most US defense contractors have multi-billion backlogs of orders.
Utility stocks are a traditional safe haven during market turmoil. Because of regulations, utilities don’t have much competition. They offer stable dividends and relative price stability compared to the rest of the stock market. In my view, utilities could be one of the primary beneficiaries of the move towards electric vehicles and clean energy, giving them an additional source of revenue from their traditional markets.
6. Waste management
Waste management companies have predictable revenue, which is often adjusted for inflation. They serve their residential, commercial, industrial, and government customers by picking up and disposing of waste. Despite being boring in nature, waste management companies have a leading role in recycling and environmental services.
7. Traditional and Clean Energy
Our energy independence is crucial when the world is undergoing tremendous polarization and deglobalization. The war in Ukraine and the impact of recent climate events have indicated that we must have a diversified basket of energy sources – oil and gas, solar, wind, and hydrogen.
Not one single source is more important than the others. Even as drivers gradually switch to electric vehicles, the current electric grid will only be able to sustain the growing demand relying on traditional energy sources. I believe it’s a very ambitious goal to require all new vehicles to be electric by mid-2035. Not to mention that an all-electric airplane is far away in the future. It remains to be seen if and how we can reach those targets. However, it’s clear that we need oil and natural gas to support this transition without disruptions. And even then, we will continue to need oil and gas as a reliable source of energy when the wind doesn’t blow, and clouds cover the sun.
Traditional oil and gas corporations are much better managed than a decade ago. Most of them pay healthy dividends and have very favorable valuation metrics. Many oil and gas firms rank high on various ESG metrics, especially in social activities and corporate governance.
On the other hand., the newcomers in the renewable energy space offer growth and innovation. The size of the renewable energy market will double between 2023 and 2030, going from $1 trillion to $2 trillion.
Technology alone is the largest sector in the S&P 500, with a 25% share. If you add some tech-driven companies in other industries, technology will be well above 30%. The market capitalization of Apple alone is higher than the entire energy sector. Technology is a quintessential part of our life. Did you know that we touch our smartphones 2,600 times a day? Google processes over 8.5 billion searches per day. Amazon ships approximately 1.6 million packages daily.
AI and Automation
There are currently nearly 10 million job openings in the U.S. There are two vacancies for every job seeker. More and more manufacturing facilities are moving back to the States. With labor shortages worldwide, there is a strong case for more automation and AI. Companies will push for more automation to provide faster service, better quality control, enhance job safety, meet unexpected demand surges, and maintain profit margins. The artificial intelligence (AI) market is expected to show strong growth in the coming decade. Its nearly $100 billion value today is expected to grow by 200% by 2030, up to almost $2 trillion.
The Covid pandemic accelerated digital transformation, which requires enormous data storage and I.T. infrastructure.
In 2023, we will generate nearly three times the volume of data generated in 2019. By 2025, people will create more than 181 zettabytes of data. Global spending on public cloud services is forecast to grow 20.7% to $591.8 billion in 2023 and surpass $1 trillion by 2027.
Cybersecurity is a crucial need for individuals, businesses, and governments. We all have heard and suffered from data breaches in high-profile corporations. Digital growth is bringing bad actors looking to profit from our fears and weaknesses. According to Michael McGuire, cybercriminals earn $1.5 trillion through various channels. Protecting your data is critical for safely navigating the digital universe.
The size of the cybersecurity market was at $203 billion in 2022. It will surpass $500 billion by 2030, with an annual growth of 12.3%.
The 5G is the next-generation mobile network and the new global wireless standard. We are still in the first innings of 5G expansion, which brings higher speed, better responsiveness, and more reliability to our phone calls, text messaging, video conferencing, and home internet. Initial projections estimate we will have a 10X higher speed than current levels. Moreover, 5G will take the world of connected devices to the next level. For instance, the growing network of smart homes, devices, smartwatches, speakers, cameras, and connected cars can dramatically change how we interact with the rest of the world.
Chips are the new utilities. They are everywhere – in cars, computers, smartphones, home devices, and manufacturing equipment. The global semiconductor market is projected to grow from $620 billion in 2022 to over $1 trillion by 2030. A big chunk of the growth will come from data centers, consumer electronics, and automotive.
9. Large banks
After the collapse of Silicon Valley Bank and Signature Bank of New York, bank stocks went out of favor. SPDR® S&P Bank KBE ETF is down 15% for the year at the time of this article. SPDR® S&P Regional Banking KRE ETF is down even more at -23%. I believe that the banking sector is a lot stronger than during the financial crisis of 2008 and 2009. The failure of these banks was idiosyncratic and a result of a combination of factors, including rapid growth, power interest rate risk management, and flighty customers.
The recent earnings reports (April 2023) by major regional banks showed relatively stable deposits, liquidity, and capital ratios. In addition to that, after the recent drop, many banks pay a handsome dividend yield. Wall Street tends to throw the baby with the bath water. Many high-quality banks have fallen without merit. The recent decline in bank stocks offers a lucrative entry level for value investors with a long-term investment horizon.
10. Quality real estate
There are three important factors that drive the value of real estate – location, location, location. Public real estate companies and the real estate market overall have been under pressure due to rising interest rates, the turmoil in the banking industry, and growing fears of recession. Historically, real estate can be a volatile asset class with dramatic falls and epic rises. However, patient investors who are willing to step-in in times of distress have been richly rewarded.