Top 9 Investing Trends For 2023

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What a difference a year makes.

At the beginning of 2022, prices were spiking higher in Canada thanks to pandemic supply chain breakdowns and consumer bank accounts stuffed with cash.  Remote work seemed here to stay and unemployment was near all-time lows. For many, there was a real sense that the pandemic economic crisis was behind us.

Not every observer was so sanguine, however, and it didn’t take long for runaway inflation to become a major headache for markets and regular Canadians.

After some hesitation (remember transient inflation) the Bank of Canada (BoC) pledged to crush rising prices by hiking interest rates. The stock market tanked, taking bonds along for the ride, making it a miserable year for investors.

With 2022 drawing to a close, the S&P 500 has clawed its way out of bear market territory but remains down 17% as of this writing. As we look ahead to 2023, here are nine investing trends that can help parse the cautionary tales from the opportunities.

1. Canada Remains an Inflation Nation

Inflation was the economic glitter of 2022—it stuck to everything. From the gas pump to the grocery store to your RRSP, investors have higher costs and less valuable dollars to invest in the future.

The big question for 2023 is whether inflation will drop toward the BoC ’s 2% target rate. Many experts suggest that’s unlikely, although it’s worth noting that the BoC’s seven 2022 rate hikes will take a while to work their way through the economy.

The International Monetary Fund (IMF) predicts that the BoC will need to keep interest rates roughly at or above 4% by the end of 2023. If that happens, it won’t help the inflation fight. That suggests that  Real Return Bonds (RRBs), Canadian Government bonds that protect against inflation,  should remain popular inflation-fighting investments.

2. The Bear Market Could Stick Around

The Covid-19 stock market rocketship crashed and burned. June 2022 ushered in the second bear market since 2020, sending investors scrambling for cover.

While stocks have officially emerged from the bear market in the second half of 2022, stock markets remain down by double-digits.

Ordinarily, bonds would take the edge off a bear market. However, aggressive interest rate hikes have bond yields falling along with stock prices. In the third quarter of 2022, the venerable 60/40 portfolio suffered greater losses than its stocks-only counterpart, causing questions about whether the O.G. portfolio needs to go.

Improving investor sentiment will likely be tied to easing inflation, so the year ahead could prove tricky for traditional asset allocation models.

While putting a “buy low” mantra into heavy rotation on your morning meditation playlist is never a bad idea, 2023 may prove that buy-and-hold investors need more than equities and fixed income to hedge against unpredictable markets.

3. Consider Alternative Investments

Speaking of broader diversification, 2023 holds promise for alternative investments finally earning a place in everyday investor portfolios.

The portfolio for 2023—no matter your net worth, risk tolerance, or time horizon—should include an increased allocation to alternatives. With their low correlation to traditional asset classes like stocks and bonds, alternatives could blunt inflation- and recession-induced volatility and buoy returns more than dividend stocks alone.

Previously reserved for accredited investors and seasoned traders, everyday investors can easily access alternative asset strategies like commodities and managed futures through a decent selection of low-cost exchange-traded funds (ETFs) and mutual funds.

While expense ratios trend higher than the average fund, the performance of alternative assets may outweigh the higher costs.

4. The Return of Canada Savings Bonds?

In this new economic environment, some are calling for the temporary return of Canada Savings Bonds. This was the formerly esteemed 71-year-old program that was ended in 2017 and was designed to offer a competitive interest rate by featuring a guaranteed minimum interest rate for one year and then fluctuating with the market rate for nine years before reaching maturity.

With the return of the Canada Savings Bond, the Canadian Federal Government could encourage a mindset of saving money among Canadians, especially if they could guarantee a higher-than-average interest rate.

Now may also be the right moment to bring back the classic investment vehicle with GIC rates so lacklustre and many banks halting the sale of third-party investment products. Plus, bringing back Canadian Savings Bonds tax-free with short-term investment windows of 18 months or less would incentivize Canadians to save in the short-term, but also give them an opportunity to reassess their options once interest rates go down again and the market returns to normal.

It would give Canadians an opportunity to soften the blow of inflation on their wallets and would provide a nice revenue stream for the federal government.

5. Watch Out for Layoffs

The hashtag of the year on social media could be #layoff. Since mid-November, tens of thousands of employees have been laid off from tech behemoths like Meta, Amazon, Lyft, Shopify and Twitter.

While boldface tech names have seen very high-profile waves of labor force reductions, other industries have seen their own losses. Real estate startups like Better, Redfin and Opendoor have slashed headcounts as rising rates and home prices dried-up mortgage applications, closed sales and corporate revenues.

As cash-strapped public companies try to shore up their balance sheets ahead of a potential recession, the year ahead could see the undoing of the historically strong U.S. labor market that could then see its impact reverberate through Canada. While experts predict that new college grads won’t be at a loss for job offers, entry-level positions have less impact on corporate bottom lines.

That mid-career—especially in tech-centric specialties—could weigh on unemployment figures. Companies seeking to whittle payroll may pursue leaner staffing protocols, leaving plenty of talent on the sidelines to appease shareholders.

6. Can Crypto Recover?

It is pretty easy to argue that 2023 has to be a better year for crypto than 2022 since it could hardly be worse.

Multiple stablecoins slipped their pegs in 2022—including TerraUSD and Tether, fueling a midyear crypto crash that wiped out hundreds of billions in value. Crypto exchanges, meanwhile, were hobbled by growing pains and layoffs (Coinbase)—not to mention the sudden implosion of FTX.

Moving into 2023, look for cryptocurrency businesses to woo investors with stories of cash reserves instead of trendy coins and celebrity endorsements. And look for big developments in cryptocurrency regulation from Washington, D.C.

The Fed launched its 12-week central bank digital currency (CBDC) proof-of-concept project in mid-November, and legislators remain excited to advance crypto regulation legislation. Meanwhile, the Canadian Government is still tabling the concept of CBDCs by launching a consultation on them in November 2022.

Unfortunately, many blockchain conversations will likely be coloured by the debacle at FTX instead of the technology’s long-term, untapped potential.

7. New Interest in Renewables

While supply chain issues stymied clean energy developments from electric vehicles (EVs) to solar panels over the last two years, 2023 could be a very good year for renewables.

With battery storage and EV adoption inextricably intertwined, BDO Global predicts a banner year for renewable energy storage systems. Increased competition in the EV market from newcomers like Rivian, Lucid, Ford and Chevy could put mainstays like Toyota and Tesla on their heels.

And natural gas shortages stemming from European Union conflicts have increased policy momentum for clean and renewable sources.

8. Hybrid Robo-Advisors May Have a Moment

Recent data from Parameter Insights show that investors exited self-directed investment tools like robo-advisors and brokerage accounts at a staggering pace in 2022. Theories on the exodus abound, but two lead the charge: Wealthier investors may be flocking to traditional financial advisors, and DIYers may be content to wait out a market recovery with cash in hand.

No matter the reason, hybrid robo-advisors—those that offer algorithm-driven investing plus access to traditional advisors—may be teed up for a lot of interest in 2023.

With consumers demanding more value for their money during inflationary times, the low-cost/expert advice behind hybrid robos hits the zeitgeist. By offering a combination of services like automatic rebalancing and tax-loss harvesting with financial advisor access, and at a fee typically lower than traditional advisors—

Price-sensitive economies make investors more value-driven than ever, which positions hybrid robos as the best of both worlds for investors eager for guidance but anxious about costs.

9. It Has Never Been Easier to Write Your Will

According to a poll from Angus Reid, only about 50% of Canadians have a will and a quarter of those who don’t, say they’re too young to worry about it yet

But with stock market returns lagging and inflation muddying 2023’s outlook, what could inspire investors to spark an estate planning upward trajectory? It has never been easier to create a will, especially in B.C. where the Covid-19 pandemic inspired it to become the first province to allow for online filling in December of 2021. It’s also one of the few ways Canadians can take control of their lives at a time where a lot seems out of our control.

Holly Geerdes, an estate planning attorney at the Estate Law Center, says that estate planning isn’t so much about death or assets. Instead, it’s about taking control and having your say on what your wishes, wants and concerns are today to live on in the years ahead.