How to help your money grow in 2023 against a backdrop of economic uncertainty
TORONTO –
Canadian traders who made it by way of a tumultuous 2022 face additional uncertainty within the 12 months forward amid elevated recession threat, increased rates of interest, persistent inflation, a jittery inventory market and a plummeting actual property market.
Investment professionals and private finance specialists say the simplest approach to develop your cash this 12 months is to maintain issues easy.
It’s time to put money into the inventory market now that costs have come down fairly a bit, particularly for folks with time on their facet, mentioned funding professional and creator of “The Sassy Investor” Michelle Hung.
“Investing in some broad market index funds like the S&P 500 index, S&P/TSX composite index, and high-quality dividend funds are good for money growth in the long term,” she mentioned.
“There is some good value out there with companies that pay steady dividends and have modest growth potential and are less volatile than, for example, technology companies. Canadian bank stocks fall into that category. They’re always good to have in your portfolio.”
Hung additionally suggests together with some safer funding choices like assured funding certificates (GICs). The two fundamental options of each GIC is the time period and the rate of interest.
“Some GICs are paying upwards of five per cent per year,” she mentioned.
Hung added that with increased rates of interest, fixed-income merchandise, similar to bonds, are higher now as an funding choice than at any time during the last decade.
When it involves the place inventory markets are headed, Carol Schleif, chief funding officer at BMO Family Office expects them to maneuver from jittery to range-bound as traders settle into the brand new regular of upper rates of interest. A variety-bound market is when the value of economic belongings like shares or commodities stay in a comparatively tight vary for an prolonged time period.
“There are ways to balance the risks of investing in stocks. Be diversified by market capitalization, locale and industry. Watch your costs and turnover. Adopt a long-term attitude and use dollar-cost averaging and rebalancing to your advantage,” she mentioned.
Being in money proper now is not a nasty thought, Schleif added.
“Cash is no longer trash. Many advisors are weaving cash holdings into asset allocation recommendations — when it historically hasn’t been considered an asset class in its own right. Investors can get paid to be patient,” she mentioned.
Cash, or liquid funds, in an funding portfolio provides you wiggle room throughout instances of economic uncertainty.
When enthusiastic about the inventory market as a car to construct wealth, Diana Orlic, portfolio supervisor and wealth advisor at Richardson Wealth, mentioned it is very important think about what stage of life you are in.
“If you’re young, you actually want terrible markets, because you’re the one that is buying, and you want to buy low,” she mentioned.
“If you’re established and you have a good net worth, I think this is the perfect time right now to review your portfolio. If you have gains, take them — take your winners. If there are things that you’re uncomfortable with, now is the time to do a tune-up.”
Orlic mentioned she prefers the Canadian markets for commodities, supplies and utilities shares and the U.S. markets for financials and healthcare for the time being.
Technology shares acquired pummeled in 2022, and whereas Orlic would not anticipate them to be the leaders within the subsequent leg up out there, she is not destructive on the sector.
“I do think that there’s still room for growth there. But will (tech) perform like the previous years? I think that remains to be seen.”
For folks searching for much less typical funding alternatives, The Sassy Investor’s Hung mentioned the crypto market remains to be price having a look at as common cryptocurrencies like bitcoin and ethereum attempt to regain their footing after a difficult 2022.
“I do have my eye on cryptocurrency now that it’s so out of favour. It’s not for everyone, but for those who can stomach higher risks, it’s an asset class to keep an eye out on,” she mentioned.
Real property is an effective funding so long as you are not placing all or most of your eggs into the basket, Richardson Wealth’s Orlic mentioned.
“If all your assets are in real estate, the trouble could be if some of the investment properties aren’t doing well or people aren’t paying. Do you have the cash flow to sustain it during bad times? Do you have the cash to sustain it if interest rates go up and mortgage costs go up?”
BMO’s Schleif factors to timber, mineral rights, farmland, wine, and artwork as different investments price contemplating, although getting good steering on choosing the suitable different investments and understanding their tax implications is essential, she defined.
When looking for out funding alternatives, Parween Mander, monetary counsellor and cash coach, is urging folks to not be impulsive amid the entire noise that basically ticked up through the COVID-19 pandemic period.
“I think we really need to be mindful of the role of social media and personal finance advice that’s encouraging people to take advantage of the current real estate and stock markets and invest because things are cheaper,” she mentioned.
“Advice like buying real estate to flip into Airbnb, crypto, and stock picking is very dangerous advice that some people may think is right for them because it’s a ‘great time to invest.”‘
It is particularly essential throughout unsure instances to be sensible along with your cash, Mander mentioned, and to prioritize debt resilience and in the end guarantee your monetary basis is safe earlier than trying to construct on it.
This report by The Canadian Press was first printed Jan. 3, 2022.
