If you’re a new investor, 2022 was a rude awakening.
More than 12 years of bull market collapse S&P 500 and the Nasdaq Both finished 2022 with their worst years since 2008.
But that shouldn’t deter you from starting investing now. In fact, 2023 could be the perfect year to start investing. Here’s why:
Image Source: Getty Images.
1. Stocks are going down
When most things are cheap, consumers want to buy more, but with stocks, falling prices tend to scare buyers.
However, the same principles apply to stocks as to anything else. When something is cheap, you can buy more for the same price, so 2023 is a great time to start investing. Using stock-to-earnings ratios as a valuation metric, the S&P 500 is currently trading at its lowest level in years.
If you are an net purchaser of stocks, you must remember that falling stock prices are a good thing because you can buy more shares of the stocks you are interested in.
It’s also worth remembering that while the market as a whole is down 20%, many stocks are down much more. They include popular FAANG strains such as: alphabet When Amazonwhich lost 40% and 50% respectively, and industry-leading growth stocks, etc. Shopify When Yearreduced by more than 70% by 2022.
There’s no guarantee these stocks will recover in 2023, but they’re all trading at historically low valuations, giving investors a chance of a comeback.
2. Interest rates are rising
Stock prices and interest rates have an inverse relationship. So interest rates tend to move in the opposite direction, and the 2022 interest rate spike was the main reason for last year’s decline in stocks. Basically, investors are willing to put more money into stocks in a low interest rate environment. This is because bonds, the main alternative to equities, have lower yields and in a high interest rate environment, investors tend to move their money away from equities. bonds.
However, going into 2023, the federal funds rate will rise in the 4.25% to 4.5% range, the highest since 2007.
Effective Federal Funds Rate Data from YCharts
In its latest statement in early December, the Federal Reserve forecast a modest rise in the benchmark federal funds rate and called for another 75 basis points increase to bring inflation back to its 2% target. Longer term, however, the central bank expects rates to fall again after 2023, slowing to a ‘long term’ range of 2.3% to 2.5% as inflation normalizes.
That means equities should benefit as interest rates start to fall over the next few years.
3. You can’t time the market
If you’re hesitant to invest in 2023, it’s probably because you’re afraid stocks will fall further. Most economists say he predicts a recession in 2023, so that may be true, but the stock market as a leading indicator tends to recover before the economy recovers, so the bottom of the market is likely It is difficult to predict. You might get lucky, but timing the market consistently is basically impossible, and trying to do so is generally a waste of time.
The best investors like Warren Buffett focus on buying quality stocks at fair prices, which has proven to be a better than market timing approach.
If you wait too long to buy stocks, you may miss the recovery. This can be a much bigger mistake than buying stocks too early before the market bottoms out.
As the saying goes, time in the market trumps market timing. If you are a new investor, the best way to harness the wealth-generating power of the stock market is to start now and let the magic of compound interest take over. work for you
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Jeremy Bowman has held positions at Amazon.com, Roku, and Shopify. The Motley Fool has positions and endorses Alphabet, Amazon.com, Roku and Shopify. The Motley Fool recommends options for a long $1,140 Jan 2023 call on Shopify and a short $1,160 Jan 2023 call on Shopify. The Motley Fool’s U.S. headquarters has a disclosure policy.