Investing your money can seem intimidating, but it doesn’t have to be. With some innovative strategies, a little research, and an understanding of your risk tolerance, you can grow your wealth through investing. Here are some of the best investing ideas to consider for 2023.
Understand Asset Allocation
Asset allocation means spreading your investments across different asset classes like stocks, bonds, real estate, etc. This helps minimize your risk because if one asset class performs poorly, the others may offset those losses. Aim to have a diverse portfolio of assets based on your goals, time horizon, and risk tolerance.
Consider Index Funds and ETFs
Index funds and exchange-traded funds (ETFs) offer instant diversification by allowing you to invest in hundreds of stocks or bonds simultaneously. They closely track significant indexes like the S&P 500 but have lower fees than actively managed mutual funds. Index funds and ETFs are a simple, low-cost way to build a diversified portfolio.
Look at Total Market ETFs
A total market ETF follows a broad market index representing the entire stock market, exposing you to thousands of stocks. This makes it an easy way to get very diversified. Some top total market ETFs are VTI, ITOT, and SCHB.
Include Some Individual Stocks
While index funds provide diversification, researching and picking some individual stocks can give higher growth potential. Focus on established, quality companies with solid fundamentals. Allocate no more than 10-20% to individual stores.
Evaluate Company Financials
When analyzing potential stocks, look at key financial metrics like revenue growth, earnings per share, profit margins, debt levels, and cash flow. These give insight into the company’s performance and valuation. Favor stocks with steady profits and revenue growth.
Don’t Ignore International Stocks
Gaining global diversification with international stocks balances risk while providing access to growth abroad. International stocks should make up 20-40% of your equity allocation. Look into total international stock ETFs like VXUS and IXUS.
Consider Emerging Markets
Emerging market stocks offer higher potential returns but also more volatility. They can provide excellent long-term growth. Some options are the VWO and IEMG emerging market ETFs. Limit exposure to 5-15% of your portfolio.
Add Some Bonds for Stability
Bonds provide set income and stability that balances the volatility of stocks. High-quality bond ETFs to consider are AGG, BND, and BIV. Your age can guide bond allocation, like allocating 40% in bonds if you’re 40.
Look to Municipal Bonds
Municipal bonds fund public projects while offering tax perks. Build income with muni bond funds like MUB, VTEB, or TFI. High-income earners may benefit most from municipal bonds.
Real Estate Can Diversify Too
Real estate investment trusts (REITs) offer exposure to real estate. REIT ETFs like VNQ, SCHH, and USRT offer a liquid, diversified way to access the real estate market. Aim for a 2-10% allocation to real estate.
Manage Risk with Asset Placement
Asset placement involves which accounts hold which assets strategically—for example, keeping REITs and high-yield bonds in tax-advantaged accounts instead of taxable accounts. Consult a tax advisor on strategic asset placement.
Reinvest Dividends for Growth
Reinvesting dividends from investments provides the power of compounding to build your wealth over time. This allows you to grow your holdings exponentially rather than relying on new contributions. Avoid cashing out dividends.
Use Dollar-Cost Averaging
Dollar-cost averaging means investing equal amounts at regular intervals, like $100 every two weeks. This ensures you don’t dump in too much when prices are high—Automate contributions for convenient dollar-cost averaging.
Review and Rebalance Regularly
Revisit your portfolio allocation every quarter or twice a year. Rebalancing returns your asset classes to your target allocations, selling winners to buy losers. This forces you to buy low and sell high—Rebalance once a year at minimum.
The key to investing is having a diversified portfolio aligned with your risk tolerance and time horizon. Stick to low-cost funds, quality stocks, and steady saving and investing habits. Avoid trying to time the market and let compounding work its magic. Stay disciplined, be patient, and your wealth will grow.
Frequently Asked Questions
Q: What percentage should be in stocks vs bonds?
A: A good starting point is subtracting your age from 110. A 40-year-old would aim for 70% stocks, 30% bonds. Adjust based on your risk tolerance.
Q: How many funds or stocks should I own?
A: Aim for at least 10-15 stocks and 5-10 funds to diversify sufficiently. Less and you need more diversification; any more becomes unwieldy.
Q: How much should I invest each month?
A: Try to invest 10-20% of your income monthly. Consistency and time in the market matter more than the amount. Invest what you can afford monthly.
Q: What timeframe should I invest for?
A: Invest for at least 5-7 years, ideally 10+ years. Investing is a long-term strategy, so avoid money you’ll need in under five years. Time lets compounding work.
Q: Should I pay a financial advisor or do it myself?
A: If you have simple needs, you can do it yourself. But an advisor helps create a customized plan and portfolio, so they are worth it for many.