If you’ve never invested before, it can be difficult to know where to put your money and why. And if you’re new to investing, the current market conditions may make you spin your head and rethink your entire investment strategy.
Red-hot inflation, federal interest rate hikes, bank failures, and countless other economic events over the past few years have made it difficult for investors to decide where to put their money and feel confident doing so.
If you haven’t taken a hard look at your portfolio in a while, it might be a good time to revisit your current asset allocation to determine if it still makes sense for you and your goals, or if it’s time to change things up.
5 Best Investments in 2023
To make things a little easier, Fortune recommendsTM For your consideration, the editorial team has collected some of the most promising investments according to experts.
1. Treasury Bills (T-Bills): Best for those with low risk tolerance
What to know: Treasury bills, sometimes referred to as T-bills, are short-term securities issued by the U.S. Treasury that are backed by the U.S. government with maturities ranging from four weeks to 52 weeks. For your term, you are agreeing to lend money to the US government in the form of these bills, which are usually sold in $100 increments. When your Treasury bill reaches maturity, you get your money back—plus interest. And, unlike other savings vehicles like certificates of deposit (CDs), you can sell a Treasury bill before it matures without paying a penalty.
“I advise individual savers as well as portfolio managers to optimize their investment returns by allocating to short-term Treasuries, such as T-Bills or Treasury Floating Rate Notes,” said Robert Michwood, chief investment officer at New Frontier Advisors. “For professionally managed portfolios, this leads to a small improvement in risk adjusted returns. However, for an individual saver, it can lead to a dramatic increase in interest earned on savings.”
How to invest: You can invest in Treasury bills directly from the U.S. government through the Treasury Direct portal, although Treasury bills can be bought and sold through your bank or brokerage.
2. High-Yield Savings Account: Best for those who still want access to their money
What to know: High-yield savings accounts work similarly to conventional savings accounts. This is a deposit account at a credit union or bank that you can use to save your money and earn interest. The key difference is that high-yield savings accounts boast higher APYs than traditional savings accounts. The national average rate for a traditional savings account stands at 0.37%, while many high-yield savings accounts available on the market offer APYs north of 4% or even 5% in some cases.
The good news: When inflation heats up and the Fed raises the federal funds rate, borrowing becomes more expensive and financial institutions will turn their savings accounts back to consumers, making such accounts a more attractive option right now. .
How to invest: Many banks and credit unions, as well as online banks and fintechs, offer high-yield savings accounts Ask your bank about their product offerings and current rates to find the best account for your needs. If you choose to open an account at a different financial institution, make sure that institution offers FDIC or NCUA insurance – that way, your deposits will be insured up to $250,000.
3. Certificate of Deposit (CD): Best for those who have a specific timeline in mind and won’t need access to their money before then.
What to know: A CD is a type of savings account that offers a fixed interest rate on a lump sum deposit for a fixed period of time. Because the bank or credit union hangs on to your funds for a certain period of time, CDs typically carry a higher APY than other types of deposit accounts. Because CD rates are fixed and will not fluctuate based on interest rates or market volatility, this makes them an ideal investment for long-term investors who want to grow their money, without any market disruptions.
Right now, the average national rate on a CD stands between 0.18% and 1.35% for a 5-year CD, though there are countless high-yield CDs on the market that offer rates as high as 5.15%.
How to invest: You can invest in a CD directly through your bank, credit union or brokerage. However, before you choose a CD, make sure you take the time to compare rates and read the fine print associated with your CD. Most CDs won’t allow you to make additional deposits after you make your initial deposit, so be prepared with the amount you want to tie up in your CD until it reaches its maturity date. Dipping into your funds before then is likely to result in early withdrawal penalties.
4. Alternative Investments: Best for those with extra capital and high risk tolerance
What to know: Alternative investments encompass assets that fall outside the traditional basket of stocks, bonds and cash. In addition to real estate, this can include commodities, hedge funds, cryptocurrencies, non-fungible tokens (NFTs), art, antiques, and more. While your entire portfolio should not be made up of alternative investments, some exposure to these unconventional assets can help you diversify your portfolio, especially during times of extreme volatility.
“We recommend enhanced diversification through alternative investments, which provide low correlation and increased return potential in a sophisticated portfolio of 40/30/30 equities, bonds and options respectively,” said Milind Mehre, CEO and co-founder of YieldStreet. “These modern portfolios are more accessible than ever to investors, with the ability to invest in alternative asset classes (such as real estate, private credit and private equity) within tax-advantaged accounts.”
How to invest: The easiest way to gain exposure to alternative investments is probably through your brokerage, an investment app or exchange.
5. Real Estate: Best for those who want to adopt a passive income stream
What to know: Real estate can be a profitable long-term investment and is a way to diversify your portfolio, increase exposure to different markets and potentially even create a passive income stream for yourself.
“An investment in private real estate offers diversification, tax-deferred income, cash flow and long-term appreciation and a low correlation to the public market. Given the current volatility in the market, a low correlation with the public market is a huge advantage for private real estate investing,” said Lindsey Collings, AVP at MLG Capital, a private real estate investment firm. “Private real estate typically has a low correlation to the S&P 500 and public REITs (which are traded on the same exchange as stocks and bonds) and much less volatility, meaning investors can have unique opportunities to grow their capital despite what’s happening in the public market. .”
How to invest: There are several routes you can take to start investing in real estate, the most obvious of which is buying a home or rental property. Other strategies may include investing in real estate investment trusts (REITs), which are companies that own, manage or finance income-producing real estate and then collect rents, operating expenses or interest payments from the properties in its portfolio and use those funds. by doing Pay dividends to shareholders. You can buy shares using a taxable brokerage account or a tax-advantaged retirement account like your workplace 401(k) or an IRA.
What to consider when choosing your investment
If you’re not sure which assets will be the best fit for you and your investment style, there are a few things you can consider to help you narrow down your options. You’ll want to think carefully about your:
- Investment Objectives: Ask yourself what you are investing for. Are you investing in your child’s education? Are you hoping to adopt a passive income stream so you can quit your nine to five and start your own business? Knowing what your goals are can help you mix up your investment strategy and portfolio.
- Time horizon: Investment time horizon refers to how long you expect to own your investment before accessing your funds. If your goal is to build a passive income stream, you may want to consider more liquid investments like rental property, for example. However, if you are investing for retirement income, you may consider investing in stocks as you have time to bounce back from any potential losses.
- Risk Tolerance: Your risk tolerance is your ability to stay the course even if your investments don’t do well. Your time horizon will also play a role here as a shorter timeline for hitting your investment goals can make you more risk-averse and vice versa. Consider how well you’ll handle market extremes and potential losses, and build your portfolio with that in mind.
Takeaway
Overall investing is a risky venture. While there are certain assets that may be considered safer, or perhaps performing better based on current market conditions and economic climate, this is not synonymous with zero risk. Make sure you understand how the assets you’re considering adding to your portfolio perform and what kinds of factors might affect performance to determine if they’re right for you.