Five Investment Strategies to Focus on in 2023

Planning instead of predicting, reducing allocations of illiquid assets and having a diversified portfolio are good ways for investors to play defense this year.

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Editor’s note: This is the final part of a three-part series about what the economy and markets could look like this year. Part one was Will Rising Interest Rates Lead to Soft Landing or Recession? And part two was What the Markets’ New Tailwinds Could Look Like in 2023.

In part two of this series, we looked at the upsides of the Fed’s year-long offensive against inflation, the market’s grounding in fundamentals and the new tailwinds for investors. As we move closer to a normalized post-pandemic environment, most indicators are still pointing to a recession, and the Fed is eyeing a soft landing. Earnings growth should drive a rebounding stock market in 2023. And, as J.P. Morgan notes, “Relatively healthy consumer and business balance sheets ... could help keep some momentum.”

Much will depend on the Fed maintaining sensible monetary policy. However, we have been playing defense for years against a cascade of disruptions, and no one can tell what the next one might be. With all this in mind, here are five things on which we recommend investors focus in 2023.

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1. Planning, Not Predicting.

The value of economic forecasts isn’t precision. They provide directional accuracy and context for what’s happening in the world and guidance for how to think about it. The future is ultimately unknowable, and the economy is infinitely complex. All forecasts contain a high degree of uncertainty. For example, today’s context offers directional accuracy: The yield curve is inverted, new housing starts have decreased significantly, asset valuations and profit margins have declined, and there are early signs the labor market is beginning to cool.

Investors would be wise to avoid making big investment decisions based on predicting what they expect to happen based on these indicators.

Instead of predicting the unpredictable, planning focuses on preparing clients and their portfolios for a wide range of possible outcomes, most of which are random and unforeseeable. We diversify not because of what we expect to happen but to protect against what we don’t.

Hubris has destroyed more wealth than any bear market. The best advice is to hedge against it with a healthy dose of humility.

2. Keep Speculative Assets in Context.

Significant allocations to cryptocurrencies or individual stocks simply aren’t prudent. Bitcoin’s staggering losses (-65% in 2022), the implosion of FTX (-100% return) and steep losses in popular technology-related stocks, all serve as painful lessons for investors.

To be clear, we’re not against investing in speculative new technologies. But every investment, especially a highly speculative one, needs to be carefully evaluated, understood and sized appropriately in such a way that negative outcomes don’t compromise your financial security, financial planning objectives or financial future.

3. Beware of Sales Pitches for Certain Bear Market Strategies.

The aftermath of bad markets is always filled with pitches for strategies and products that “worked” during the market’s most recent decline. Commodities, for example, delivered outsized returns during the first half of 2022, with the Bloomberg Commodity Index returning 37.8% through June 9.

This year, however, the index has a YTD loss of 9%. Such strategies are typically expensive, illiquid, poorly understood and/or fail to deliver sustainable long-term returns.

While things like commodities, annuities, TIPS, hedge funds or private equity may have a place in your portfolio, investors should be careful not to invest in these products or asset classes based solely on recent past performance. They should carefully assess their risks, complexity, long-term return prospects, fees, tax treatment and lack of transparency and liquidity before making any serious decisions.

4. Diversify to Play the Long Game.

There is no substitute for a low-cost core portfolio that’s highly diversified both across and within global asset classes. In 2022, the FAANG stocks — Facebook (Meta), Amazon, Apple, Netflix and Google — those darling technology stocks of the past decade, declined a staggering 46.1% vs. a relatively more modest loss of 18.6% for the S&P 500.

An equity portfolio with even modest allocations to certain factors — such as value stocks, dividend-paying stocks or minimum volatility stocks would’ve helped to mute those losses.

Further, any allocation to bonds (whether short- and intermediate-term) would’ve also helped. The Bloomberg US Aggregate, for example, lost 11% in 2022; while no one likes losing money — especially not on bonds — losing 11% is far better than losing about 19% or 46.1%. There’s real value potential in broad, long-term diversification.

In a year when most asset classes delivered negative returns and valuations returned to earth, there are no lack of opportunities for real value creation through diversified portfolios, planning instead of predicting and reducing allocations of illiquid assets.

5. Devote Time to Wealth Management.

Finally, investors should devote as much time to wealth management as portfolio management to reap opportunities for tax loss harvesting, gifting and estate planning.

Connecting the dots can give us a better sense of the overall picture and ensures we don’t miss the forest for the trees.

Certified Financial Planner Board of Standards Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors is registered as an investment adviser with the SEC. Content is for educational and illustrative purposes only and does not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate, but is not guaranteed or warranted by Mercer Advisors. Past performance may not be indicative of future results. Diversification does not ensure a profit or protect against a loss. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client's investment portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. For financial planning advice specific to your circumstances, talk to a qualified professional.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Don Calcagni, CFP®
Chief Investment Officer, Mercer Advisors

As Chief Investment Officer at Mercer Advisors, Don is responsible for setting the strategic direction of the firm's investment platform, chairing the firm's investment committee, overseeing all investment-related communications, and the prudent stewardship of the firm's assets under management. His expertise is in the areas of fiduciary oversight, economics, financial mathematics, portfolio management, corporate finance, and taxation.