A Look Ahead: Long-Term Growth Markets

One of the foundations of investment strategy is building a diverse portfolio. With so many options, including stocks, bonds, REITs, and CDs, it’s important to know how the investment vehicles you select are expected to perform. Analysts have their thoughts on the 10-year outlook for the stock market, as well as the performance of investments over the last year. Examining these results and predictions can help inform your investment strategy going forward. Here are a few things you might want to take into consideration when looking for ways to build long-term growth.

2022 Market Performance at a Glance

The last year presented investors with some significant market volatility. While ups and downs are always expected, some factors, including inflation, geopolitical uncertainty, and ongoing supply chain disruptions impacted the markets throughout the year. This caused considerable chaos for stock markets, with the S&P 500 down 20% at the end of 2022. Slower growth and existing market conditions may mean that buying low right now might not lead to the same gains investors might typically expect during market rebounds. Bonds also experienced a slump in 2022, and some investors saw significant losses. In fact, U.S. bonds saw a loss of 13%, which was partially due to the Federal Reserve’s interest rate hikes during 2022. Interest rates also impacted real estate markets and other investment markets, providing investors with some challenges when selecting where to put their money.

Stock Market Outlook

While subject to market volatility, the stock market tends to provide higher returns than bonds and other fixed-rate investment vehicles. The current economic climate, with interest rates continuing at higher rates than the previous years, may lead to lower gains for stock market investments. JPMorgan’s most recent research indicates a U.S. recession may be likely in 2023, but a global recession is not expected. As a result, foreign stocks may not feel the same impacts and volatility as domestic stocks. However, it’s important to note that changes in the Federal Reserve’s policy, as well as any number of other economic factors, can change the outlook for the stock market and investment markets in general.

Bond Market Outlook

Bonds may not have had a great year in 2022, but they seem to be on the rebound. Risk-free treasuries offer a way to offset stock market losses in a diverse portfolio, and starting yields are currently trending higher than they were in 2022. While bonds bought before the recent interest rate hikes did not perform well, those sold at the higher rates have higher yields and greater promises of return. Government-backed bonds may provide yields of 4-5%, which may not be as high as seen with other investments, but they can offer a smart addition to a portfolio.

Real Estate Outlook

Real estate provides a way to hedge against inflation and market volatility while building a portfolio geared toward long-term growth, and that ideology holds true for 2023 and beyond. While some were worried about a potential bubble burst after such a strong real estate market over the last few years, it would appear so far that those fears were unfounded. Interest rates remain high, but the market is significantly different than it was during the Great Recession. Inventory remains low for new homes, which means there’s still considerable demand for both houses and rental units. Prices for single-family homes are only expected to fall around 4%, keeping prices higher than they were pre-pandemic.

Outlook for Other Investments

Of course, there are other investment options to consider when looking to create a long-term growth strategy. Higher interest rates can positively impact other fixed-interest vehicles, such as CDs. Starting CD ladders, for example, during times of higher inflation can provide another way to hedge against market volatility. The cryptocurrency market saw significant volatility throughout 2022, and predicting its outlook may be difficult. Potential for government regulations may offer some options for stabilizing the market, but there’s no clear answer for how crypto will perform in the future.

What it Means for Investors Like You

Investors looking to build long-term growth may see lower returns on stocks, though foreign stocks may provide more stability should the U.S. see a recession in 2023. Higher interest rates provide the potential for higher returns when investing in bonds and CDs, though the returns may still be lower than stocks. Real estate continues to provide an option for hedging against inflation. Other alternative investments, such as crypto, may be difficult for experts to predict in the coming years. 

As always, you should consult with a financial expert before making any decisions about investing. Be sure to discuss all the options available for creating a diverse portfolio and building a successful strategy for long-term growth. DiversyFund offers both REIT funds and single-asset investment options, making it easy to add real estate to your portfolio.

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