It's fair to say that 2022 has been a rocky year for investors. And now that we're at the tail end of it, you may be iffy about the idea of adding more money to your portfolio in 2023.
On the one hand, who could blame you? But despite recent market turbulence, ramping up on the investing front in 2023 should pay off in the long term. Here's why.
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1. You'll need the money during retirement
Once you exit the workforce, you'll need money to supplement your Social Security checks. Those benefits will only replace about 40% of your pre-retirement income if you're an average wage earner during your career. And that assumes that benefits don't get slashed in the not-so-distant future, which is a distinct possibility given that Congress has thus far failed to take steps to address the program's revenue shortfall and the impending depletion of the Social Security Trust Fund.
But putting the possibility of Social Security cuts aside, many people would inevitably struggle to get by on just 40% of their former earnings. So if you want to avoid a financial crunch during retirement, you'll need to go into it with a solid nest egg. And the more money you invest in 2023, the more you'll have deployed to benefit from long-term growth opportunities.
2. You want to get ahead of inflation
Although inflation has started to cool since it peaked this summer, the cost of living has been rising for all of 2022. In fact, at the start of 2022, seniors on Social Security got a 5.9% cost-of-living adjustment, but the impact of that raise was effectively wiped out by the rapid surge in inflation that followed.
It's not just retirees who have been hurt by inflation, of course. Most consumers have been forced to cut back on spending or rack up more debt this year.
The upside of investing is that money in the stock market has a fair chance of growing over time at rates that outpace inflation.
3. You want to capitalize while the market is down
At this point, a lot of people's portfolios are on track to end the year down significantly. And while that's not a great thing, the silver lining is that many stocks are discounted right now, which gives you a prime opportunity to scoop up more shares at lower valuations than usual.
That said, even if stock values come back up in 2023, it will still be a good idea to keep investing from there. But you may want to specifically ramp up your buying at the start of the year to capitalize on more growth opportunities.
How to invest in 2023
When it comes to putting your money to work, you have choices. One factor to focus on when choosing investments is diversification. Your goal should be to assemble a portfolio that contains a healthy mix of assets, so if there's a particular market sector you've historically shied away from, now may be a good time to open a position in it.
Another solid investment to look at in 2023? Index funds. These passively managed funds track different benchmarks and aim to match their performance. Adding index funds to your portfolio is a great way to get diversification without having to do the serious research one should perform before buying individual stocks.
Either way, if you're able to invest more in 2023 than you did in 2022, that's a good thing. Doing so could work to your advantage from multiple angles.
