As we step out of the painful market of 2022 to enter 2023, it's essential to approach the markets with caution and a long-term perspective. While it's natural to get caught up in the excitement of the latest hot stock or trendy new investment opportunity, you should know that successful investing requires a diversified portfolio and a focus on the long haul.
Every bear market and recession eventually leads up to another upswing. There are no guarantees that the switch from troubled waters to good times will be quick, but the data doesn't lie: Investing in the stock market with a long-term focus will make you money in the long run.
With that comforting fact in mind, here are a few top tips for successful investing in 2023.
Diversify your portfolio
Diversification is key to successful investing. By spreading your investments across a variety of asset classes, such as stocks, bonds, real estate, and cryptocurrencies, you can help protect yourself against market volatility and minimize the impact of any one investment underperforming.
If you prefer to focus on just the stock market, diversifying your stock portfolio is still a critical step in managing risk and maximizing long-term returns. Investing in a range of stocks across different sectors and industries can reduce the impact of any one stock underperforming.
Maybe you don't feel up to the task of picking dozens of great long-term investments across a wide range of industries, geographic markets, and risk profiles. Luckily, there's an easy -- and completely reasonable -- way out. An exchange-traded fund that tracks a major stock index will give you an instant base of broadly diversified stocks. For example, I picked up shares of many exciting growth stocks in 2022 but I still invested more in the Vanguard 500 Index Fund (VOO 0.83%) than in any specific stock this year.
Stay the course
A long-term perspective is essential for serious investors. While it's tempting to try to time the market or chase after the latest hot investment, these strategies can be risky and often lead to poor performance. Instead, focus on building a well-diversified portfolio and stick to your investment plan, even during times of market volatility.
For me, who sees tremendous long-haul value in the streaming media market even while the sector as a whole is on fire sale, that meant grabbing more shares of Netflix and Roku. I still balanced those buys out with the S&P 500 index tracker I showed you earlier. All things in moderation (lagom är bäst, for my fellow Swedes out there).
Keep an eye on fees
High fees can eat into your investment returns, so it's important to be mindful of the fees you're paying. Look for low-cost investment options, such as well-managed index funds, which can help you keep more of your returns.
Let's say you invested $10,000 in the Vanguard 500 Index Fund a decade ago. Thanks to the fund's minimal management fees, your dividend-adjusted returns would be just $110 below the S&P 500's theoretical gains. A fund tracking the same index but with higher fees, such as the Franklin S&P 500 Index A mutual fund, would have left another $1,540 on the table:
VOO Total Return Level data by YCharts
Furthermore, you want to stay clear of trading fees and commissions. Most online stock brokers offer fee-free trading services nowadays, but those ugly cash-eating costs may still make an appearance when you invest in fractional shares, stock options and futures, cryptocurrencies, and mutual funds. Keep an eye on those charges and avoid them whenever possible.
Monitor your portfolio regularly (but not obsessively)
You need to keep an eye on your investments and make sure they're aligned with your financial goals. If your portfolio starts to stray from your investment plan, it may be time to make some adjustments. At the same time, you shouldn't lose sleep over the stock charts. In a perfect world, you should have so much trust in the long-term future of your chosen investments that you don't mind leaving them unattended for weeks or even months at a time.
Investing is a marathon, not a sprint. Patience and stamina matters much more than the ability to jump on temporary opportunities at a moment's notice. Those quick money makers often turn out to last longer than you'd think, giving you plenty of time to take action when you find a serious buying window flung wide open.
By following these tips and approaching the markets with caution and a long-term perspective, you can set yourself up for success as an investor in 2023 and beyond.
