Seasoned investors use short- and medium-term volatility to buy into long-term trends in markets. Identifying these trends can be challenging, but filtering out the noise can help you focus on portfolio winners, thus, potentially leading to significant gains.
Here are five of the hottest investment ideas, including some themes with strong growth potential in 2023 and beyond.
The technological revolution has propelled artificial intelligence (AI) to the forefront of civilization, making what was previously merely a dream a reality. With AI affecting many facets of our lives, the developing technology may become the century’s most impactful industry.
According to International Data Corporation (IDC), a market intelligence firm’s global AI market revenues might reach $900 billion by 2026, with a compound annual growth rate of 18.6 per cent from 2022 to 2026.
AI’s primary goal is to more accurately and quickly mimic human intelligence. With its uses and applications affecting almost every industry, AI is gaining strength as computers and other technologies become more intelligent.
Consider ChatGPT, a sophisticated chatbot that can quickly write comprehensive human-sounding prose, or DALL-E 2, an AI system that employs machine learning techniques to create realistic visuals and art from text.
The technology is already in use, whether it be in autonomous vehicles, robo-advisors, or drug discovery studies.
Exchange-traded funds (ETFs) provide a practical and convenient alternative for most retail investors to invest in AI equities, thus giving them exposure to the sector without having to research individual stocks.
Three things to think about are as follows:
- ROBO Global Robotics and Automation ETF (ROBO)
- ARK Autonomous Technology & Robotics ETF (ARKQ), and
- Global X Robotics & Artificial Intelligence ETF (BOTZ).
Rising Interest Rates
The Federal Reserve has raised interest rates to their highest level since 2006 in an effort to combat inflation.
According to past experience, certain economic sectors do well when interest rates are rising. When it comes to financial institutions, for instance, even a minor increase in interest rates might result in billions of dollars of revenue from interest-bearing loans.
However, as long-duration assets have suffered due to the rise in interest rates, several banks have recently come under pressure due to unrealized losses in their bond portfolios.
However, given that the industry is finally returning to normal after a downturn, this would be a good moment to invest.
Investors can once more focus on generating respectable rates of return on fixed-income assets owing to the recent increase in interest rates as a whole. Most people became accustomed to earning nothing on their savings and short-term investments during periods of low-interest rates. But today, some CDs and high-yield savings accounts also provide interest rates above 5%.
High-dividend stocks or dividend funds are options for investors wanting to make money while still having exposure to stock market. These investments offer respectable dividend yields and have the potential to increase in value if the underlying businesses perform successfully. You should consider the Vanguard High Dividend Yield ETF (VYM) and the Schwab US Equity Dividend ETF (SCHD). You can use the income from investments to supplement your income during times of high inflation or to simply make some additional cash. Make sure your funds are producing a respectable rate of return; that choice hasn’t been available in a very long time.
Since economists don’t anticipate prices to return to normal levels for at least another year, many investors are still looking for inflation protection after it reached multi-decade highs in 2022.
Two straightforward methods to shield your funds from growing inflation prices are Treasury Inflation-Protected Securities, or TIPS, and Series I Bonds. These securities are issued by the U.S. government, whose yields are determined by the level of inflation. For instance, the par value of TIPS increases in line with inflation, however, the variable interest rate on I Bonds does not. The interest yield on I Bonds is currently 4.3 per cent, but it may alter by the end of October.
Long-term evidence also supports the effectiveness of stocks as an inflation hedge. Companies with pricing power can gradually raise their profit margins or even retain them by passing on rising costs to their customers. However, in the short term, worries about continuous inflation may frighten investors and lead to a decline in stock prices.
In times of inflation, investors frequently look to gold as a store of value. Gold does not, however, provide any income for its owners, unlike stocks. Instead of getting bigger dividend payments over time as you would with a diverse stock portfolio, you won’t.
Investors can either purchase actual gold or make investments utilizing ETFs like the SPDR Gold Shares (GLD).
Investors, customers, and employees have revived interest in companies that prioritize environmental, social, and governance (ESG) policies as a result of the upheaval and uncertainty brought on by the global epidemic. These businesses have made the choice to prioritize long-term value creation over short-term earnings in addition to profits.
And it seems like those decisions are paying off. According to Morningstar, ESG investment inflows increased to $37 billion in the fourth quarter of 2022, bringing the total amount invested to roughly $2.5 trillion.
The world of investing is always changing, so being up to date on the most recent advances is essential for making wise choices. Investors can improve their chances of success in 2023 and beyond by closely examining the trends and threats.
Although there are several other investment trends to watch out for, we have mentioned a few of them in this blog.