It's been a tumultuous year in 2022, with a second bear market, a drop in the S&P of 17%, significant losses in the cryptocurrency market, and U.S. inflation approaching double digits. These events could have stretched over a decade and still felt intense, but they all took place within the span of just one year.
Now that the year is over, let's consider the investing trends of 2023 and find ways to safeguard our wealth from future challenges.
Inflation is a major concern
Inflation had a major impact on the economy in 2022, affecting everything from grocery prices and gas to 401(k)s and stocks. The purchasing power of investors was significantly reduced due to higher costs and the decreasing value of the dollar. While the Federal Reserve aims to bring inflation down to 2% in 2023, many experts believe this is unlikely.
However, we may still feel the effects of the six interest rate hikes in 2022 as they work their way through the economy.
In order to protect their wealth, investors are diversifying their portfolios with assets that have low correlation with other markets, as a hedge against inflation.
Alternative investments are becoming the norm
In 2023, it seems likely that alternative assets will finally gain a well-deserved place in every investor's portfolio.
If you want to protect your wealth in 2023, no matter your net worth, time horizon, or risk tolerance, you should consider increasing your allocation to alternative investments.
In the past, only accredited investors and experienced traders had access to alternatives. Now, you can choose from physical assets, private equity, or even commodities to add to your portfolio.
While some of the alternative asset classes have a higher entry point than average stocks or bonds, you can start building an alternative portfolio with Investables for as little as $10 by choosing physical assets.
The bear market may continue
The Covid-19 stock market boom raised our hopes, but instead it led to a second bear market since 2020, causing panic among investors.
While stocks have officially exited bear territory in the second half of 2022, many are still down by double digits.
One might think that bonds and a 60/40 portfolio would help investors stay afloat, but bonds were also affected by the aggressive rate hikes. In fact, holders of a 60/40 portfolio suffered greater losses in Q3 of 2022 than those with a stock-only portfolio.
A decrease in inflation could improve investor sentiment in the stock market, but the uncertainty surrounding inflation brings added risk for traditional asset allocation models.
While the stock market in 2023 remains uncertain, this year may once again demonstrate the need for investors to have more than just a traditional portfolio and a fixed income to maintain their wealth, let alone grow it.
Is it time to invest in cryptocurrency?
2023 may be a better year for cryptocurrency, simply because it can't be worse than 2022.
With Bitcoin dropping from $60,000 to $16,000, the TerraUSD slipping from its peg and causing a midyear crisis in the crypto market, and billions of dollars in value being erased, it's hard to imagine what else could have gone wrong for crypto this year.
Add to that the mass layoffs at crypto exchanges and the FTX scandals, and it's clear that 2022 has been a rough year for the industry.
While 2023 holds the promise of greater regulation of cryptocurrency from the U.S. government, the chaos of 2022 is likely to overshadow discussions of the potential of blockchain technology.
If you do choose to invest in crypto, be sure to look for projects with cash reserves rather than popular coins or celebrity endorsements
Big tech companies face significant layoffs
In mid-November, it was difficult to overlook the large-scale layoffs at tech companies such as Twitter, Amazon, Meta, and Lyft, among others. This attention was partly due to the buzz generated by Elon Musk's $40 billion Twitter purchase.
However, it's not just big tech firms that are cutting back on staff in preparation for a recession. Real estate startups like Opendoor, Better, and Redfin have also undergone workforce reductions as rising home prices and interest rates have caused a slowdown in mortgage applications.
While college graduates are still likely to receive job offers, entry-level positions at corporations may not have as much impact on corporate balance sheets in the face of a recession.
Mid-level employees at tech companies should be prepared, as staffing protocols may undergo changes and specialists may be left on the sidelines in order to attract investor money.
Overall, the outlook is not entirely negative
Although we all have high hopes for 2023, it's not just holiday cheer that has us feeling optimistic.
The markets are recovering and the Federal Reserve has promised to bring inflation under control. Cryptocurrency may not yet have our trust, but regulations from the U.S. government could change that.
Alternative assets are also now available to everyday investors, allowing them to continue growing their wealth despite financial turmoil.
To achieve greater stability for your finances in 2023, diversification will be key. You may need to increase your allocation to alternatives to better hedge against risk, so choose your assets wisely.
Investables offers collections of physical assets with low correlation to traditional markets, such as Rolex watches, fine art, wine collections, and classic cars. You can start building your alternative investment portfolio with as little as $10.