The year 2022 was notably turbulent for investors, characterized by one of the most challenging bear markets in recent history, compounded by a rising cost of living and inflation rates not seen in decades. Although central banks in the US and Europe seem to be retreating from long-term interest rate hikes, investors must adopt a new strategy for 2023.
Blackrock suggests that a successful investment strategy for 2023 requires a more detailed and specific approach rather than broad market exposures. With this perspective, let’s examine the most promising long-term investment trends for the current year and beyond.
Cryptocurrency Market
The cryptocurrency sector remains diverse and rapidly evolving. Major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) are being utilized in various applications, from online gaming to enhancing supply chain management and healthcare efficiency.
Despite the collapse of FTX, a leading crypto exchange, in 2022—which highlighted the risks of decentralized currencies—cryptocurrencies remain a viable long-term investment. Managing the volatility of this asset class with a long-term perspective is crucial. As of February 2023, BTC and ETH saw price increases of 1.3% and 3.7%, respectively, while Polygon (MATIC) grew by 6.6%.
Diversification is key to a robust crypto portfolio. Investing in multiple strong projects across different blockchain use cases and market caps is recommended.
Mega-Cap Stocks
In 2022, mega-cap stocks were heavily invested in due to the popularity of market-cap-based indexing. However, inflation and rising interest rates led to a decline towards the end of the year, with the top ten S&P 500 companies losing a combined $4.9 trillion.
Experts at Morgan Stanley Research believe that 2023 could see a resurgence in mega-cap stocks, particularly in the tech sector. With the software market projected to exceed $1 billion in the next 18 months, adding mega-cap tech stocks, such as Microsoft, to your portfolio could be advantageous. Microsoft’s average earnings-per-share growth of 36.5% over the past five years, a 23% market share in cloud computing, and a $10 billion investment in AI (ChatGPT) position it as a strong long-term investment.
Emerging Market (EM) Stocks
UK and US stocks often dominate investment portfolios, but emerging market (EM) stocks are poised for a rebound in 2023, according to Gartner. EM stocks are currently trading at historically low prices, and shifting global trade relationships, especially due to strained US-China relations, could spur growth.
US Bond Market
For the first time in over a decade, rising interest rates have made US bonds attractive again, offering high yields. While inflation has adversely affected the stock market, fixed-income assets are providing better returns.
Including bonds in your 2023 investment portfolio is wise, but diversification remains crucial. Some bonds offer returns of 4.7%, but it’s important not to abandon stock investments entirely. A balanced approach involves allocating bonds between mid-term and long-term investments. Cash-equivalent products like CDs, with their low risk and solid returns within two years, and higher-rated bonds for five-year or longer returns, are recommended due to their lower default risk.
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