Investment Trends For 2023 And How To Adjust Your Investment Portfolio

This year has been challenging for investors, with bear markets across the globe that wiped out $22 trillion in wealth, high inflation rates in most developed countries around the world, and geopolitical events such as the invasion of Ukraine. As we look ahead to 2023, some of these factors may change, while others may continue to impact the market. Suppose you're looking to rebalance your portfolio or expand it. In that case, you may be interested in the hot investment trends for 2023 that can help you navigate volatility and potentially reap the rewards. As many investors have learned in the tumultuous market of 2022, making the right investment decisions can make a significant difference in a volatile year and beyond.

Let's now dive in and look at some of the investment trends in 2023 that you should be keen on and how you can adjust your investment portfolio appropriately. 

U.S. Inflation will be Lower in 2023 

In 2021, supply chain disruptions, pent-up consumer demand, low unemployment, and low-interest rates led to inflation spikes. Initially, Fed policy makers believed the price rise was temporary, but when they continued to rise, the Fed was forced to increase interest rates in March 2022. After two modest rate increases earlier in the year, the consumer price index (CPI) reached a peak of 9.1% in June. As a result, the Fed implemented four significant 75 basis point rate hikes in the year's second half, bringing the target range for the federal funds rate to between 3.75% and 4%. 

As of November, CPI rose 0.1% from the month prior, down from a 0.4% pace in October. The deceleration suggests that the Fed's most aggressive set of interest-rate hikes in 40 years may be starting to slow demand and ease price pressures more broadly. The report came days after U.S. Treasury Secretary Janet Yellen on Sunday forecasted a substantial reduction in U.S. inflation in 2023, barring an unexpected shock. "I believe by the end of next year you will see much lower inflation if there's not … an unanticipated shock," she told CBS' '60 Minutes' in an interview released on Sunday. 

If that happens, the pace of Fed rate hikes will reduce significantly since the Fed has always insisted they want to see first the rate of inflation reduced before slowing down the pace of rate hikes. That said, a low inflation rate in the U.S. would mean the Fed funds rate would be down/low-interest rates which would make it cheaper to borrow money from banks, making people spend more, and in turn, it would stimulate the economy. 

Cash is King 

With tough financial times ahead and a possible recession due, 2023 will be a challenging year for investors. Investors are still predicting Central Banks around the world will stick to higher interest rates in 2023 to tame inflation, which will be bad news for stock prices. They increase the cost of capital, discouraging companies from borrowing and investing in expanding their businesses. Indeed this also is bad news for investors as earnings growth will tend to stagnate. There will also be a negative impact on discounted cash flow valuations, hurting high-growth stocks. That said, at such times, cash would be considered more valuable than stocks. 

Additionally, having a significant level of cash will allow businesses to weather economic downturns when people are in savings mode and demand for a business's products or services may be low or non-existent. The higher the level of cash, the easier a company will be able to pay its operating expenses and debt obligations, even if revenues are low.  

Attractiveness of Gold 

According to Fitch Solutions, a weakening U.S. dollar, recession, geopolitical risks and lingering Covid-19 outbreaks could support investors interested in Gold as a Safe Haven.

The firm believes the Fed's hawkishness, which has supported U.S. dollar strength, will begin to fade as it slows the pace of rate rises next year. According to Fitch Solutions, global economic growth is expected to slow to 2% in 2023 compared with 3.1% in 2022 as recession hits the eurozone and the U.S. "Amid such a clouded global backdrop, investor interest in gold's safe-haven status will remain strong," the firm said. It expects the conflict between Russia and Ukraine to last until the second half of 2023. Furthermore, waves of Covid-19 are still causing on-off restrictions as mutations continue to infect people worldwide, jeopardizing vaccine efficacy.  

Additionally, according to JP Morgan's forecast in October, Gold could trade around $1,670/oz in the first quarter of 2023, up from $1,650 in the final quarter of 2022. The U.S. multinational investment bank predicted Gold would rebound to $1,860 in the fourth quarter of 2023 when the Fed is expected to pause its tightening cycle. That said, investors should be on the lookout to invest in Gold. 

Will Crypto Recover? 

2023 will be a better year for Cryptocurrency than 2022, as 2022 was marked by several stablecoins losing their value, leading to a significant drop in the overall value of Cryptocurrency. Additionally, cryptocurrency exchanges faced challenges due to growing pains and layoffs, as well as the collapse of FTX. In 2023, it is expected that cryptocurrency companies will focus on convincing investors with solid financial reserves rather than flashy coins or celebrity endorsements. There may also be significant progress in regulating Cryptocurrency by the government, including the Federal Reserve's 12-week proof-of-concept project for a central bank digital currency(CBDC). However, the negative impact of the FTX situation may continue to influence discussions about blockchain technology and its potential.

Hybrid Robo-Advisors May Have a Moment  

According to recent data from Parameter Insights, many investors have been withdrawing their funds from self-directed investment platforms like Robo-advisors and brokerage accounts. There are several potential explanations for this trend, including the possibility that wealthier investors choose to work with traditional financial advisors and that DIY investors may opt to hold onto cash until market conditions improve. In light of this trend, hybrid Robo-advisors, which provide a combination of automated investing tools and access to human advisors, may see increased interest in the coming year. As consumers seek more value for their money during times of inflation, the low-cost, expert advice provided by hybrid robots is likely to be particularly appealing. These platforms offer various services, such as automatic rebalancing and tax-loss harvesting. They typically charge lower fees than traditional advisors, making them an attractive option for investors who want guidance but are concerned about costs.  

Conclusion 

Investing in areas with evidence of long-term growth potential can help you achieve profit and minimize the downside risk to your portfolio. As a result, the top investment trends for 2023 discussed above can be an essential guide to help you discover the best places to invest now.