Inflation climbed to a 40-year high this year and financial markets reported double-digit losses. Many experts now say a recession is likely. A Goldman Sachs economist puts his chances of a recession next year at 35%. JP Morgan calls for a “moderate recession” in its latest market outlook, with Bloomberg economists saying it’s close to his 100%. % certainty.
Economic growth and inflation are also wildcards. Fund giant Vanguard expects most major economies outside of China to grow “flat or slightly negative” over the next year. And while money managers have suggested the unemployment rate will “rise throughout the year,” the Federal Reserve has said falling unemployment is essential to slowing inflation, but its primary The numbers are “likely not to climb to levels roughly as high as 2008 and 2020,” according to a recession. ” With all this in mind, we asked some pros: How should you invest in 2023?
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Some experts say that certain parts of the stock market could be a bright spot in 2023. Vanguard’s Capital Markets Model (VCMM), the company’s financial simulation tool used to enhance the outlook for global capital markets, shows an expected improvement in global equities, with: suggests to. The 10-year annualized returns of the non-U.S. developed markets (7.2% to 9.2%) and emerging markets (7% to 9%) are higher than the U.S. markets (4.7% to 6.7%).”
And Caleb Tucker, Director of Portfolio Strategy at Merit Financial Advisors, says diversified equity exposure will be on investors’ side in 2023. Tucker expects “growth stocks to perform significantly better than their market capitalizations,” resulting in “more attractive diversified exposures, including companies that currently generate cash flows.” He added that there are.
Despite high global uncertainty across the board this year, Tucker said international valuations were “low relative to equities” and may be insufficient to predict short-term returns. “Purchasing stocks at relatively low prices has been shown to increase their value over the long term.” Run. “
Marc Pfeffer, managing director of S64 Capital Innovation, added that if corporate earnings early next year show a reduction in headcount, “companies will be operating with fewer people.” [if] The Federal Reserve is cutting interest rates — I think that’s good for stocks. ”
fixed income
To combat persistent price increases, Vanguard said next year the central bank will be forced to “go well beyond the neutral policy rate, where policy is neither considered accommodative nor restrictive, to keep inflation in check.” I am predicting. “Higher starting rates have more than doubled return expectations for U.S. and international bonds,” despite higher interest rates causing investors a lot of short-term pain, the fund manager economist said. added.
Vanguard also forecasts a 4.1% to 5.1% net return on U.S. Treasuries over the next decade. “For international bonds, we expect returns of 4% to 5% per annum over the next decade, compared to our forecast of 1.3% per annum a year ago to 2.3%.”
Now more than ever, it’s time to consider more opportunistic investment ideas such as bonds, said Ken Stern, president of Lido Advisors. “Fixed income investment opportunities can provide a steady stream of income that is generally considered to be less risky than equities.”
Pfeffer adds that he is also considering certain government bonds in 2023. “If the Fed were to raise interest rates, you would want the duration of your portfolio to be a little longer,” Pfeffer said, adding, “We will be extending to the bottom of the curve with investment-grade corporate bonds.” “The 2- to 5-year Treasury sector … to give some protection.”
real estate, infrastructure, etc.
Another sector that shouldn’t be overlooked next year is real estate, Stern said. With real estate investment trusts (REITs) posting an average year-to-date loss of 25.22% in his 2022 (as measured by Dow Jones’ Equity REIT Index), Stern said it may be time to turn the tide. says.
In the private sector, JP Morgan Asset Management also said in its latest market outlook that these assets “are well positioned to deliver stable cash flow and diversification in public markets, even if capital values decline.” . The company also said that “infrastructure will help hedge against inflation” and that transport assets could see some improvement “as global trade continues to normalize”.
When thinking of real estate as a sector, Stern said he is always “excited” that the real estate sector is “worth more than stock prices.” As for private real estate assets, Stern said, “People continue to rent because rising interest rates are impacting housing affordability. But investors have been buying multifamily homes in recent years. Now many of those same investors are looking to unload – see the potential opportunity?”
Conclusion: Make sure you have a long term plan that you respect
Of course, no one has a crystal ball. Experts say it’s important to have a long-term, diversified strategy that sticks to the main while also looking to other opportunities. Warren Buffett, in his 1996 letter to shareholders, simply advised, “Put together a portfolio of companies whose total profits are rising year-on-year, and the market value of the portfolio is also rising.” “If you don’t want to hold stocks for 10 years, don’t even think about holding them for 10 minutes.”
But a 60/40 portfolio split — a traditionally diversified portfolio of 60% equities and 40% bonds that once yielded an average annual return of 9% — has generated more than 30 losses year-to-date. What about the fact that %, as of Q3?This was his worst start to the year since the aftermath of 1929, but investors say diversification is still key. In fact, Vanguard anticipates that the goal of a balanced approach is likely still on track.
One of the lessons here might be something like this, Tucker says. “If this year has proven anything, it’s that the good times don’t always last,” he says. “Now when things are looking good, we put more energy into planning for worst-case scenarios rather than waiting for storm clouds to roll in.”
When looking ahead, Stern agrees, it’s important not to let past performance influence future decisions. please,” he said. “Half of this is motivated by trying to survive this year’s doom and gloom, while the other half is learning to be opportunistic regardless of the circumstances. That means the good times don’t always last.”
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