The 5 Best Investments for 2023

If you’ve never invested before, it can be hard to figure out where to put your money and why. And if you’re new to investing, current market conditions may make you dizzy and rethink your entire investment strategy.

Red-hot inflation, federal interest rate hikes, bank failures and a myriad of other economic events over the past few years have made it difficult for investors to know where they should put their money and feel confident about it.

If you haven’t taken a close look at your portfolio in a while, it might be a good time to revisit it to determine if your current asset allocation still makes sense for you and your goals, or if it’s time to change things up.

The 5 best investments in 2023

To make things a little easier, Fortune RecommendsTM The editorial team has gathered some of the most promising investments according to experts for you to consider.

1. Treasury bills (T-bills): Best for those with a lower risk tolerance

What you should Know: Treasury bills, sometimes called Treasury bills, are short-term securities issued by the U.S. Treasury that are backed by the U.S. government with maturities ranging from four weeks to 52 weeks. For the duration of your term, you agree to lend money to the US government in the form of this bill, which is usually sold in $100 increments. When your Treasury reaches maturity, you’ll get your money back plus interest. And unlike other savings vehicles like certificates of deposit (CDs), you can sell T-bills before they mature without paying a penalty.

“I recommend that individual savers as well as portfolio managers optimize their investment returns by allocating to short-term Treasuries, such as Treasury bills or floating-rate Treasuries,” says Robert Michaud, chief investment officer of New Frontier Advisors . “For professionally managed portfolios, this results in little improvement in risk-adjusted returns. However, for an individual saver, this can lead to a dramatic increase in interest earned on savings.

How to invest: You can invest in Treasury bills directly from the US government through the TreasuryDirect portal, although Treasury bills can also be bought and sold through your bank or brokerage firm.

2. High Yield Savings Accounts: Best for those who still want access to their money

What you should Know: High-yield savings accounts work the same way as traditional savings accounts. This is a deposit account at a credit union or bank that you can use to save and earn interest on your money. The main difference is that high-yield savings accounts boast higher APYs than traditional savings accounts. The national average rate for a traditional savings account is 0.37%, while many high-yield savings accounts available on the market offer APYs north of 4% or even 5% in some cases.

The good news: when inflation is hot and the Federal Reserve raises the federal funds rate, borrowing becomes more expensive and financial institutions will raise their savings account rates to attract customers, making this type of account an even more attractive option right now .

How to invest: Many banks and credit unions, as well as online banks and fintech companies, offer high-yield savings accounts. Ask your bank about their product offerings and current rates to find the best account for your needs. If you decide to open an account at another financial institution, be sure to check to see if that institution offers FDIC or NCUA insurance—that way, your deposits will be insured up to $250,000.

3. Certificates of Deposit (CDs): Best for those who have a specific schedule in mind and won’t need access to their money before then

What you should Know: A CD is a type of savings account that offers a fixed interest rate on a lump sum deposit for a specified period of time. Because the bank or credit union holds your funds for a period of time, CDs typically carry higher APYs than other types of deposit accounts. Because the interest rates on CDs are fixed and will not fluctuate based on changing interest rates or market volatility, this makes them an ideal investment for long-term investors who want to grow their money without having to endure market fluctuations.

Currently, the national average CD rate is between 0.18% for a 1-month CD and 1.35% for a 5-year CD, although there are countless high-yield CDs on the market offering rates as low as 5.15%.

How to invest: You can invest in CDs directly through your bank, credit union or brokerage. However, before choosing a CD, be sure to take the time to compare prices and read the fine print associated with your CD. Most CDs won’t allow you to make additional deposits after your initial deposit, so you’ll need to be prepared with the amount you want tied up in your CD until it matures. Dip into your funds before then is likely to result in high early withdrawal penalties.

4. Alternative Investments: Best for those who have extra capital and higher risk tolerance

What you should Know: Alternative investments encapsulate assets that fall outside the traditional basket of stocks, bonds and cash. In addition to real estate, this can include commodities, hedge funds, cryptocurrency, non-fungible tokens (NFTs), art, antiques, and more. While your entire portfolio shouldn’t consist of alternative investments, some exposure to these unconventional assets can help you diversify your portfolio, especially in times of extreme volatility.

“We recommend increased diversification through alternative investments that provide reduced correlation and increased return potential in a modern portfolio of, say, 40/30/30 stocks, bonds and alternatives respectively,” says Milind Mehere, CEO and co-founder of Yieldstreet. “This modern portfolio is more accessible to investors than ever, including the ability to invest in alternative asset classes (such as real estate, private credit and private equity) within tax-advantaged accounts.”

How to invest: The easiest way to get exposure to alternative investments is likely to be through your brokerage, investment app or exchange.

5. Real Estate: Best for those hoping to adopt a passive income stream

What you should Know: Real estate can be a profitable long-term investment and is one way to diversify your portfolio, increasing your exposure to different markets and potentially even creating a passive income stream for yourself.

“Investing in private real estate offers diversification, tax-deferred income, cash flow and long-term appreciation, as well as low correlation with public markets. Given the current market volatility, the low correlation with the public markets is a huge benefit to private real estate investing,” said Lindsey Collings, AVP at MLG Capital, a private real estate investment firm. “Private real estate typically has a low correlation to the S&P 500 and public REITs (which trade on the same exchange as stocks and bonds) and much less volatility, meaning investors can have a unique opportunity to grow their capital despite what happens in the public markets.”

How to invest: There are several ways you can start investing in real estate, the most obvious being to buy a home or rental property. Other strategies may include investing in real estate investment trusts (REITs), which are companies that own, manage or finance income-generating real estate and then collect rents, operating expenses or interest payments from the properties in their portfolio and use those funds to pay dividends to shareholders. You can buy stocks using a taxable brokerage account or a tax-advantaged retirement account, such as your workplace 401(k) or IRA.

What to consider when choosing your investments

If you’re not sure which assets will be the best fit for you and your investment style, there are a few factors you can consider to narrow down your options. You’ll want to think carefully about your:

  • Investment objectives: Ask yourself what you are investing for. Are you investing in your child’s education? Are you hoping to adopt a stream of passive income so you can quit your 9 to 5 and start your own business? Knowing what your goals are can help shape your investment strategy and portfolio mix.

  • Time horizon: The time horizon in investing refers to the length of time you expect to own your investment before you need access to your funds. If your goal is to create a stream of passive income, you’ll need to consider more liquid investments like rental property, for example. However, if you’re investing for retirement income, you might consider investing in stocks because you have time to recover from potential losses.

  • Risk tolerance: Your risk tolerance is your ability to stay the course even when your investments aren’t doing well. Your time horizon will also play a role here, as a shorter timeframe to achieve your investment goals can make you more willing to take risks and vice versa. Consider how well you would handle extreme market swings and potential losses, and design your portfolio with that in mind.

The taking

Investing in general is a risky endeavor. While there are certain assets that may be considered safer or perhaps perform better based on current market conditions and the economic climate, this is not synonymous with zero risk. Make sure you understand how the assets you’re considering adding to your portfolio perform and what factors may affect performance to determine if they’re right for you.

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