Professional investors typically have a multi-decade market perspective. They capitalize on short- and medium-term volatility to purchase into themes they anticipate are going to bear fruit. Recognizing these tendencies are often challenging, but ignoring distractions lets you see what’s on the horizon, which eventually leads to substantial benefits.
5 investment areas expected to develop substantially
Let’s look at five hot investment areas which have the potential to develop substantially in 2023 and beyond.
1. Artificial intelligence
The technological revolution has propelled artificial intelligence (AI) to the forefront of civilization, turning what was once simply a concept into a reality. With AI affecting many facets of our life, developing technology has become the most significant industry of the century.
International Data Corporation (IDC), a source of market data, forecasts that by 2024, global AI industry sales is going to surpass $500 billion, growing at an annual compound rate of 17.5 per cent over the next five years.
At its heart, AI aims to imitate human intellect with higher precision and speed. AI gets increasingly powerful as computers and machines become more brilliant, with its uses and applications affecting practically every sector. Whether it’s autonomous vehicles, robo-advisors, or academics using AI for drug development, the technology is now pervasive.
Exchange-traded funds (ETFs) give most ordinary investors a simple and economical option to invest in AI equities. Here are three ETFs that invest in robotics and artificial intelligence (ROBO).
- Global X Robotics & Artificial Intelligence ETF (BOTZ)
- ARK Autonomous Technology & Robotics ETF (ARKQ)
- ROBO Global Robotics and Automation Index ETF (ROBO)
2. Increasing interest rates
The Federal Reserve has escalated interest rates to their highest level since 2007 to slow inflation, and further increases are likely.
Historically, specific economic sectors have performed well in an environment of rising interest rates. For financial organizations, a slight rise in interest rates results in billions of dollars of interest income from increased lending rates.
Another group that frequently gains is cash-rich, low-debt corporations. When yields increase, these companies’ cash reserves provide greater returns. Technology and healthcare businesses often have the largest cash reserves among the S&P 500, as many stockpile cash for strategic partnerships and other development possibilities. Due to the Federal Reserve’s tightening of monetary policy, tech stocks struggled severely in 2022, with even the most prominent companies experiencing a dramatic decline in share prices.
These three exchange-traded funds (ETFs) often interest investors looking for exposure to these industries (XLK).
- Finance Select Sector SPDR Fund (XLF)
- Health Care Select Sector SPDR Fund (XLV)
- Technology Select Sector SPDR Fund (XLK)
In addition to equities, bond market returns are closely associated with interest rates. To profit from this tendency, investors pursue various investment strategies like
- purchasing short-term fixed-income instruments
- reinvesting coupon payments from long-term bonds
3. The metaverse
People now communicate in virtual worlds without being physically close to one another, are a vital component of the internet’s potential in the future. Yet according to analysts’ projections, these virtual settings are the next significant investment opportunity.
Tech firms are creating ecosystems which enable users to do almost everything they’d do in real life online, thanks to improvements in
- processing power
- internet speed
- other technologies
For instance, Meta (Facebook) intends to spend billions developing the metaverse.
As the number of users of these virtual worlds increases, so does the interest of companies seeking to profit from this trend. For instance, a virtual art gallery or a virtual shoe startup.
Analysts see NVIDIA (NVDA), a semiconductor business that drives computer graphics, as a possible winner from the rise of the metaverse, among other investment options. Fastly (FSLY), a leader in cloud technology, and Autodesk (ADSK), which makes software that architects and designers use to produce 3D models, are also significant players.
4. Inflation prevention
As per the U.S. Department of the Labor data, inflation has continued above its top level since the early 1980s, causing people to pay more for various goods. Experts don’t see inflation returning to normal for at least another year. Hence, investors are looking for strategies to preserve their purchasing power in the face of rising prices.
TIPS, or Treasury Inflation-Protected Securities, and Series I Bonds are two straightforward ways to safeguard your investments from growing inflation charges. These securities are issued by the United States government, with yields determined by the inflationary climate. For instance, the par value of TIPS increases with inflation, but the interest rate on I Bonds varies with inflation. The current interest yield on I Bonds is 6.89 per cent. However, this rate is going to change by the end of April.
Long term, stocks have also shown to be a good inflation hedge. Businesses with pricing power pass on rising costs to their consumers, allowing them to preserve or expand profit margins over time. In the near term, though, fears regarding sustained inflation startle investors and lead stock values to plummet.
Investors frequently use gold as a store of wealth during inflationary periods. Unlike stocks, gold doesn’t provide any income for its owners. As with a diversified stock portfolio, you don’t get dividend payments that increase over time.
Gold investors purchase the actual metal or invest through exchange-traded funds such as SPDR Gold Shares (GLD).
5. ESG investing
The upheaval and unpredictability generated by the worldwide epidemic rekindled investors’, customers’, and workers’ interest in firms that emphasize environmental, social, and governance (ESG) reasons. These businesses have pledged to prioritize producing long-term value over short-term earnings.
And these decisions look to be profitable. According to Morningstar, inflows into ESG investments reached $120 billion in the first half of 2022. The total amount invested amounted to roughly $2.5 trillion while it’s supposed to hit $53 trillion by 2025.
By adopting ethical business practices, sustainable companies have more robust stock prices than their competitors. According to a Bank of America study, shares of firms with strong ESG policies
- Are less volatile
- Have greater three-year returns
- Are less likely to declare bankruptcy
ETFs that track an index of highly rated ESG firms, such as the iShares MSCI USA ESG Select ETF (SUSA), are one option to invest in socially aware companies. American Express (AXP). Thse are some of the names on the list (HAS)
- Accenture (ACN)
- Disney (DIS)
- Home Depot (HD)
Automate your investments
Diversified investments are essential to enjoy a healthy financial future. If you’ve yet to begin to acquire securities, now is the right time to start. Invest in an all-inclusive trading platform that enables you to design, test, and execute trading by enabling automated investing strategies.
Top 7 types of investments for 2023
These are seven types of investments for 2023.
1. High-interest savings accounts
It offers a modest rate of interest on your account balance. It’s an excellent location for storing your cash or emergency reserve. With so many banking alternatives available, you discover that online banks offer greater interest rates. Move funds from your high-yield savings account to your regular bank account.
2. Short-term certificates of deposits (CD)
CDs are generally regarded as a safe investment. If lower interest rates are provided after the maturity date, and you choose to reinvest, they pose a danger. Also, it happens to be problematic if inflation rates soar and erode your purchasing power.
3. Short-term government bonds funds
These funds are suitable for novice investors seeking cash flow. Yet, longer-term bonds have greater interest rate risk than shorter-term bonds.
4. S&P 500 index funds
This type of investment is ideal for newbie investors who desire a low-risk introduction to trading in the stock market. It’s advised to maintain a stake for at least three to five years to see a return. The S&P 500 offers an annual return rate of around 10%, even on the smallest of the investments.
5. Dividend stock funds
These are fantastic investments for people seeking a source of income, no matter how little. Both short-term and long-term investors are drawn to this investment strategy.
6. Real estate & REITs
Real estate is ideal for investors with a long-term horizon, and large lump amounts for down payments and other fees. REITs operate similarly, except that there is no down payment or costs. With a REIT, you own a portion of the property rather than the entire property.
Crypto is ideal for high-risk investors with disposable income. It isn’t suited for those seeking a more secure investing strategy. Cryptocurrency is a very volatile investment since it’s unregulated and hence not supported by the U.S. government.
Investment climate is shifting faster than ever before
Investing your money wisely helps you achieve your financial goals. Whether you’ve just begun to invest or have years of expertise, various options are available.
Do your homework and determine which investments are best for you and your future. Put some money aside if you haven’t already because starting now is better than later. If you’re ready to begin investing, look into some of the best investment apps and robo-advisors.
About Author- Fatema Aliasgar is an experienced B2B and SaaS content writer based in Mumbai, India. She has done her Master’s in Business Management and has written B2B content for seven years. She likes to read non-fiction and play board games with her kids during her free time.