Whether your portfolio is recovering from a challenging 2022 or you’re starting a new career and beginning to invest – here are three investment tips for 2023. As an individual investor your focus should be to preserve your principal investment funds. Next, you should seek to increase your rate of return above the rate of inflation. If you can do this, the purchasing power of your investments should be intact going into retirement.
Tip 1 – Insist on a Dividend
When selecting a stock investment, insist on a dividend. Dividends are important because a company that returns money to shareholders through dividends are typically profitable. Profitability of an investment choice is extremely important in a bear market and high interest rate environment. Dividends indicate the company is confident in future earnings and potential growth opportunities. Some exchange traded funds (ETF) offer both dividends and diversification if you’re not comfortable with single stock investments. For example, the Vanguard Consumer Staples ETF currently offers a 2.19% dividend yield.
Tip 2 – Don’t Fight the Fed
When the chairman of the Federal Reserve (Fed) speaks, listen carefully and don’t fight the Fed. In the most recent December Press Release, the Fed raised the target range for the federal funds rate by 50 basis points. The Fed stated they “anticipate ongoing increases to return inflation to 2 percent over time”. How can an investor use this information to make informed investment decisions? Ongoing rate increases are bad for high price to earnings ratio (P/E) stocks with no earnings. If your portfolio contains stocks with little to no earnings, have high historical P/E ratios, it may be time to sell. Alternatively, consider short positions in the market. For example, the ProShares UltraPro Short QQQ ETF increases in value as the high priced and tech heavy NASDAQ loses value.
Tip 3 – Make Sure to Diversify
Having a diversified investment portfolio is important in any market, but, especially in this market. Make sure to diversify your portfolio by sectors. For example, limit any sector investments to no more than 10% of your portfolio value. That means, don’t have all your eggs in any one basket. I do not count cash in this calculation. Further, I limit any single position in my portfolio to 5% with the exception of cash.
Now is also a good time to be overweight cash and be ready to invest during a major market downturn. Investment professionals refer to sideline cash as a “keeping the powder dry” for buying opportunities. Make sure to keep a buying list for future investments and monitor the P/E ratios and Book Values to find deals.
Benefits of Working with a Financial Coach
These three investment tips for 2023 can help, but remember the journey to achieving personal financial success can be difficult. You will learn a lot along the way. If you need help along the way, consider hiring a Personal Financial Coach to guide you along and provide support. Read my blog posts – Benefits of Working with a Financial Coach – for some information on the benefits to having someone in your corner who is not trying to sell you a financial product.
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About Mike Greco
Mike Greco is a finance expert and business consultant based in Fort Lauderdale, Florida. Mike holds an MBA from Chaminade University of Honolulu. He has a wealth of experience in the military, construction, and banking industries. He is passionate about helping people and businesses succeed and shares his knowledge through his blog. Mike enjoys spending time with his wife, Elsie, and their mini poodle, Humberto.
