Stock Analysis & Ideas

Which Assets Can Boost Portfolio Returns Going into 2023?

Story Highlights

Investors have been treading difficult waters for much of 2022. With the Fed continuing to bump up interest rates in an effort to tame inflation and Wall Street experts suggesting a looming recession, investors are scrambling to buffer their portfolios with inflation-ready assets for 2023. 

There has been a lot of uncertainty floating around in the market as investors and consumers brace for the increasing possibility of a looming recession. Still, certain assets, including high-yielding dividend stocks, interest-bearing assets, and more, can help you be well-positioned for the next year.

Throughout much of the year, consumers have felt piping-hot inflation reach deeper into their disposable income, while inflationary housing listings have now priced out would-be buyers from the market. In less than a year, interest rates have nearly doubled, and despite the hardships many have already endured, experts suggest that the hardest part has yet shown itself. 

S&P 500 (SPY) year-to-date chart.

Though conditions have been deteriorating faster than many experts initially anticipated, and with nearly one in three American voters now saying that fixing the economy should be a top priority for the federal government, some are considering unconventional assets that can cushion their wealth as they brace for a further economic downturn. 

Here are some potential assets to consider for your portfolio in 2023. 

Look for Compounders

The talk on the Street has been that a downward trend in consumer spending due to higher inflation and tightening monetary borrowing will eventually cause economic conditions to wind down faster than many anticipated. This can leave investors feeling bearish, regardless of which side they look to move to. The solution could potentially be to put some cash aside in compounding assets that will enjoy periods of growth even as markets slowly recover. 

For starters, the less-celebrated zero-coupon bonds can help to generate the equivalent of compound interest, which helps compensate for the associated risk. Investors don’t necessarily receive interest payments, but they pay less than face value for the bond and are then paid the face value in full by the time the term is up.

You could also look at high-dividend-yielding stocks. In current conditions, your best bet would be to consider some of the more popular Dividend Aristocrats who have increased their yields over the decades. TipRanks’ Dividend Stocks page allows you to easily screen for dividend stocks and compare them, as shown below.

Companies that fall under the consumer staples, industrial, and healthcare sectors are generally safer and more rewarding options when allocating shares of your portfolio. 

Seek Growth Stocks 

Growth stocks can potentially be another cushion to your portfolio in case of a sudden recessionary downfall, and it may seem a bit odd to mention growth stocks during a time of high volatility, though investors should consider the long-term gains rather than looking at the near-term expectations. 

When it comes to growth stocks, experts tend to lean towards companies that will remain fully operational during times of market downturn. In this case, it’s likely best to park your cash in companies that still offer a valuable consumer service or product, even when the broader market plays out negatively. 

A good place to start is by looking at the past performance of popular stocks such as Roku (NASDAQ: ROKU), which has seen Jason Bazinet from Citigroup suggest that there’s 49% in upside potential. The same can be said about Block (NYSE: SQ), which a Goldman Sachs analyst claims will see 72% share price upside in the coming months. 

Although these are only two of several well-considered options, growth stock options come in different shapes and sizes, and investors should consider options that generally perform well during slow economic times. 

Connected consumer services and goods, such as Roku and Block, among others, make well-worth growth stocks. Others such as MacroLibre (NASDAQ: MELI), Zoetis (NYSE: ZTS), Bill.com (NYSE: BILL), Cloudflare (NYSE: NET), and Coinbase (NASDAQ: COIN), among others, could have a parabolic reaction if things eventually recover.

See Value in REITs Again

This year has been brutal for real estate investors, and the Fed has been hiking interest rates at the fastest pace in nearly four decades. With mortgages climbing rapidly since the start of 2022, many first-time buyers and real estate investors have curbed the idea of buying into the property market right now. However, it’s possible that in the likelihood of a recession, the Feds could be forced to push down interest rates again to help ease the cost of borrowing and kickstart the economy. This would leave greater potential for real estate investment trusts (REITs) as a way to buffer against inflation and demonstrate cyclicality. 

In the past, real estate acted as a hedge against inflation, and several property magnets such as Prologis (NYSE: PLD), Realty Income (NYSE: O), Rexford Industrial Realty (NYSE: REXR), Agree Realty (NYSE: ADC), Alexandria Real Estate (NYSE: ARE), Public Storage (NYSE: PSA), and National Retail Properties (NYSE: NNN), among others, could potentially see strong upside in 2023. 

These companies operate and own rental properties in several industries, ranging from self-storage to hotels, communication towers, and healthcare facilities. Companies in these industries are not affected by macroeconomic conditions, and they tend to demonstrate a more steadfast and continuous performance. 

On the back of this, investors should also not underestimate the migration of people during the last few years as many have left urban and densely populated areas, seeking refuge in suburban areas. 

Even if fewer consumers are purchasing houses or apartments, the exodus of private property is still owned and operated by a corporate body, and in this case, these REITs tend to enjoy better growth despite seeing larger market downturns. 

Stay Focused on the Long Term

As brutal and underwhelming as this year has been, investors should consider the long-term growth of their portfolios, even as many experts suggest the possibility of a looming recession. 

It’s hard to say what the next year will have in store in terms of the stock market and, more so, the economy. While it’s better to be prepared now rather than later, a key element is to consider your portfolio’s diversity of high-growth and low-volatility assets. 

Keeping track of building a well-performing portfolio could mean a big difference at the end of the changing economic cycle. Nonetheless, it’s more important to consider the long-term wins over the short-term losses and not to fixate on assets that could potentially be harmful to your wealth.

Disclosure

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