We all want to get richer. And here’s the best news. You don’t have to win the lottery to fulfill your dreams of financial security. Solid investments over time could help you along the path. This means your financial future isn’t just a matter of picking a bunch of lucky numbers. You actually have some control in the matter.
When should you get started? For long-term investors, any time is the right time to start building wealth. But right now, in the wake of last year’s market declines, is a particularly good moment. That’s because many stocks are trading at bargain valuations that offer you great entry points. So, if you have $10,000 (or even less), here’s where you should invest it in 2023.
Diversify to manage risk
First, let’s talk about a few points you should always keep in mind when adding to your portfolio. No matter how much money you’re investing, it’s important to spread it out over multiple stocks and themes. This diversification will help you manage your level of risk. If you go all in on one stock or the latest popular investment theme, you could win big — but you also could lose big.
You also should make it a priority to hold your investments for the long term — at least five years. That will give you more opportunity to benefit from a company’s growth — and (hopefully) its eventual share performance — as well as other elements such as dividend payments.
From year to year, your investment strategy may not change greatly. But it is wise to consider fresh opportunities as time goes by. And the start of a new year is often a good time to review your portfolio and take action — or a good time to start investing if you’re new to it.
Today, a few areas of the market stand out. First of all, growth stocks. Most of these suffered painful declines last year. In some cases, economic woes weighed on their earnings. Amazon (NASDAQ: AMZN) is a perfect example of this. High inflation increased the company’s costs and decreased the amount of money its customers had to spend on discretionary purchases.
In other cases, investors turned away from growth stocks simply because they are viewed as riskier bets than older, more established companies that pay dividends.
Shop for beaten-down stocks
In 2023, it’s a great idea to pick up some of these beaten-down players — especially if they’ve offered recent signs of strength. For example, Tesla (NASDAQ: TSLA) reported record revenue, operating income, and net income in 2022’s fourth quarter. Its shares have started to rebound, gaining 40% in January, but they’re still reasonably valued. They now trade for 46 times forward earnings estimates, compared to more than 80 last year.
You might consider potential recovery stories too. For example, Disney (NYSE: DIS). The company recently brought back one of its most successful chief executive officers ever and gave him a mandate to cut costs and revamp its strategy — all in a period of two years. So there may be some catalysts ahead for the entertainment giant.
It’s also wise to seek out stocks with solid records of dividend growth. One of the best places to look for them is on the list of Dividend Kings, which is restricted to those companies that have boosted their annual payouts for at least the past 50 consecutive years. Earning a place on that list strongly implies that management views rewarding shareholders as a high priority, and is likely to keep doing so.
Why invest in dividend stocks now? Because these companies pay you just for holding their shares. You’ll appreciate this extra income if the market takes some time to recover. And if the market does shift into bull territory soon, you’ll still love collecting the recurring payouts — a little bonus to add to your share price gains.
From big pharma to tech
And finally, consider investing across industries — from the safety of big pharmaceutical companies with steady revenues to technology stocks with high growth potential. In every case, with last year’s losses in mind, this is a good time to focus on picking up shares of solid companies that are trading at bargain valuations.
So, how should you divide up your $10,000 (or less) across these investment ideas? It’s important to start by getting a handle on your comfort level with risk. If you have the stomach to be an aggressive investor and your focus is on growth, you’ll want to invest more heavily in growth stocks and sectors like technology, but put a smaller part of your money into assets such as healthcare stocks and dividend payers. If you’re a more cautious type who will lose sleep over steep dips in the value of your portfolio, you’ll want to do just the opposite.
Will the choices you make today transform into riches in 2023? Not necessarily. And that’s OK. In many cases, overnight gains quickly turn to overnight losses. You’re better off choosing companies with strong businesses that have what it takes to gain ground over time, and letting them pave the way to your financially secure future.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon.com and Tesla. The Motley Fool has positions in and recommends Amazon.com, Tesla, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.