Overall, the hardest shift might be a mental readjustment. “After a particularly tough year, many investors may be tired of the emotional roller coaster they have been on and feel compelled to get off, remaining on the sidelines,” said Megan Slatter, a wealth adviser at Crewe Advisors. “While understandable, it is arguably one of the worst financial decisions they could make.” So if you’re committed to staying the course, here’s what you can do to set yourself up for investing success in 2023.

Consider rebalancing your portfolio 

Many investors know how much they intend to allocate towards stocks, bonds, or cash, but after so much turbulence in the market in 2022, their actual asset allocation may be seriously out of whack. “After a year of so much volatility, portfolios could could really be out of line from a long-term asset allocation perspective,” explained Brian Price, head of investment management for Commonwealth Financial Network. Price explained that for non-qualified accounts, rebalancing makes sense to do in the new year, so the gains from the rebalancing will be counted in the 2023 tax year. 

Slatter also emphasized that rebalancing your portfolio to reflect a traditionally safe distribution of assets will pay off in the long term, despite the fact that both stocks and bonds took a hit this past year. “2022 was the year when a traditional balanced portfolio was officially out of favor, with high inflation causing significant chaos in all asset classes through rising interest rates and rapidly increasing risk premiums,” explained Megan Slatter. “However, we anticipate this to be a temporary shift and expect traditional diversification’s tried-and-true investment strategy to be back in favor as markets return to more normal behaviors.”

Bonds could be right for you

The high yields that marked 2022 makes fixed income especially attractive for many investors this year. “For the first time in almost two decades, there is an opportunity for investors to generate income from their portfolios due to rising bond yields,” said Slatter. “As investors continue to search for yield, there is a compelling argument that extending duration and incorporating U.S. Treasuries could provide a strong backbone for investors’ fixed income allocation within their overall portfolio allocation,” explained Slatter. She added that corporate-grade investment bonds also could be an attractive option to many investors. 

Bonds should especially be considered for investors who are no longer working full-time. “Bonds certainly merit consideration for clients that are either at or in retirement that are looking for fixed income,” Price said. “I think good bonds are back in vogue again.”

Prioritize value over growth

Especially when market conditions are murky, picking positions that prioritize solid fundamentals is vitally important. “Within the equity space, I would encourage people to overweight value relative to growth,” recommends John Lynch, chief investment officer for Comerica Wealth Management. While high-growth stocks may have been attractive during the bull market, investors have now seen the dark side of prioritizing growth over value. 

Lynch explained that looking for value over growth can be applied to mutual funds as well as individual stocks. “In a rising rate environment, I think the emphasis needs to be on quality,” Lynch said. While many funds are a combination of value and growth stocks, investors can use tools such as Morningstar Research’s list of value funds to see what funds skew toward value. 

Look for opportunities in emerging markets

Some advisers emphasized that looking beyond the U.S. domestic market could be a great strategy to find growth in your portfolio in 2023. “The Federal Reserve has recently indicated that they remain committed to keeping interest rates higher for a while to help soften inflation. That would suggest continued weakness in the domestic economic markets, particularly in early 2023,” explained Slatter. “Investors should pay attention to international markets and emerging markets. There are several high-quality companies globally, and the risk versus reward profile is particularly attractive for many of them,” she added.

Ludwigson agreed, adding that the lifting of some COVID-19 restrictions in China could be an economic boon globally; however, the country is seeing a devastating uptick in cases since the loosening of pandemic restrictions. “Starting valuation favors non-U.S. markets, and the U.S. dollar may have peaked,” he said. “The reopening of [China], the second largest economy in the world, could provide a meaningful boost to emerging markets.”

Yet Lynch argued that because of the strength of the dollar, investors shouldn’t shun domestic equities.
“As much as we’ll focus on fundamentals for the emerging space, it really comes down to flows and the dollar, and the dollar is higher.” He also added that the energy crisis in Europe is cause for concern about the European market’s growth. Fortune’s Tristan Bove recently reported that the global recession is likely to hit the U.K. particularly hard due to oil shortages.

Play the long game 

While uncertain market conditions may be alarming, the biggest mistakes investors can make are out of fear. With market volatility expected to continue into 2023 and a potential recession looming, investors should brace themselves for a rocky market but be committed to steady decision-making. “I think perhaps most important is for investors to have a patient mindset,” says Lynch. 

If investors wait for the market to improve before getting back into it, they likely will have already missed much of the rebound of the bull market. “This is a good time to remind investors how critical it is to remain invested during volatile times, and not allowing emotional decisions to dictate investment decisions; to do so could prove devastating for long-term financial success,” said Slatter.