We are approaching towards the end of year 2022 and the start of 2023 as 2022 was a year of many challenges. We saw the supply chain disruptions during and after the covid-19, Russia-Ukraine war, 40-year high inflation, rising interest rates to counter inflation, and slowing growth rates. Almost all asset classes responded negatively to these developments except commodities, particularly energy. Both equities and bonds decreased in value. Inflation appears to have peaked, whilst rate rise continues. 2023 is expected to bring opportunities for investors, although fears of recession and deteriorating corporate profitability are still there. However, financial markets are perceived as leading indicators and they bottom out before the economy does. Therefore, it is better to prepare for 2023 to take advantage of the potential opportunities. Below are some of the top tips to keep in mind when entering year 2023.
- Build-up your savings pot, Start investing, and Think Long-term
Investing in volatile markets and high inflationary environment requires strong nerves and a lot of discipline. However, there is a positive side as well. There is a saying that “wealth is created when there is blood in the streets”. The best time to invest is at the time asset prices are depressed and valuations are down. As legendary investor Warren Buffett says, “be fearful when others are greedy and be greedy when others are fearful”. Year 2023 is expected to be the year of opportunities for long-term investors when inflation is in control and interest rates start declining to support economic growth. Now is the time to build savings and plan your investing goals. Learn more about investing during times of high inflation by reading an article on inflation here.
Want to learn how to invest during periods of heightened market volatility? This article is worth clicking.
2. Take advantage of the ISA allowances
Do not forget to utilise your ISA allowance to grow your capital tax free. The ISA allowance for 2022/23 is set at £20,000 and for Junior ISAs it is £9,000. One can utilise this allowance before 5th April 2023 and the same amount after 5th April 2023, assuming government does not change the limit for 2023/24.
3. 2023 probably not a good year for mortgages and property market
Central banks are following a hawkish approach to raising interest rates to get inflation under control and probably to bring it back to 2% target. This stance is pushing mortgage rates much higher, making it unaffordable for many home buyers. The consensus view for the rates is they can remain higher for longer and probably will start declining in 2024, however, it is still uncertain what the next 6-12 months will unfold. For those looking to invest in property, being cautious may be prudent in coming months and seeking professional advice is always very useful. Moreover, we would encourage Muslim investors to consider Sharia compliant financing alternatives – please consult a qualified Mortgage Adviser for advice.
4. Going for Quality and Diversification
The most prudent approach to adopt while making investing decisions in 2023 is to pick high quality investments and diversify your portfolios across and within different asset classes. Quality and diversification would protect the investment portfolio from drawdowns under heightened market volatility. It’s worth reading the article on diversification (coming soon…) to learn about how best to diversify investment portfolios across and within different asset classes.
5. The era of Value Investing is back
The last decade was the time when growth investing outperformed the value investing due to technology boom and innovations. Finding value was hard during that time. However, current market conditions resulting from high inflation and rising interest rates have pushed the valuation back to reasonable levels. There are many opportunities offered by different asset classes for value hunters who have long-term investing view. Learn the benefits of long-term investing by reading this article.
6. Equities may offer better opportunities for long term investors
Historically, equities are the best performing asset class over the long term. Although, 2022 has been a bad year for equity investors, but over the long-term equities most probably would outperform all other asset classes. Therefore, equities should not be ignored in a diversified investment portfolio.
7. Emerging market equities
Emerging market equities provide attractive returns during periods of recovery and growth in addition to playing a role as a diversifier in the portfolio. Emerging economies have the potential to offer good returns in coming years, therefore, have a slice of emerging market equities when formulating portfolios.
8. Alternative Investments
Alternative investments have low correlations with traditional investment assets, therefore, reduce portfolio volatility through greater diversification benefits. Alternatives depend more on their individual investment attributes and less on broader market drifts, hence, adding alternative investment assets can potentially decrease the overall risk of a portfolio and enhance portfolio returns.
9. Go Green… think about ESG… make your contribution towards a better world
The planet earth is facing changing environmental challenges and the world is becoming more conscious about these challenges. The focus is shifting towards renewable, clean energy and ethical finance, hence, ethical investing should be given a considerable weight in the portfolios. At Simply Ethical, we invest your money based on ethical values. Have a look at this link to learn about our ethical screening criteria.
10. Consider how to invest money – Robo-advice OR Personal Advice
Robo-advisors offer many benefits for small retail investors because they charge lower fees compared to more traditional counterparts. Additionally, investors can start with less capital to invest and build their portfolios over time doing dollar-cost averaging. Here’s our Online Advice solution.
However, for those investors who have large capital to invest or want a more personalised advice, our Personal Advice service may prove useful, where we can formulate a more tailer-made portfolios based on your risk profile, needs and financial objectives.
Have a look at our service comparison to see what’s right for you.
And finally, have an open discussion with your Financial Adviser
Keeping calm and controlling your emotions during increased market volatility is difficult but it is the right thing to do. However, if you feel nervous and need assistance, talking to your Financial Adviser is always fruitful.
You can book a free consultation with one of our Financial Advisers to learn more about our investment approach and how we can help you.
Past performance is not a reliable indicator of current or future returns. This overview contains general information only and does not consider individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy to any person in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it would be unlawful to market such an offer or solicitation.