What are the best investments to make in 2023 and how to choose them?
The scenario with which 2023 opens appears very uncertain to an investor looking for the best investment. Five economic factors, in particular, are unpredictable both if we consider them individually and if we try to imagine how they will combine with each other:
• high inflation
• central banks raising interest rates
• war in Ukraine following the Russian invasion
• energy crisis
• Covid-19 pandemic
Global uncertainties
As those looking for where to make the best investments know, given the high interconnection between global economies, each of these factors, regardless of where it manifests itself, has consequences on a global level. This is what happened in 2022: the FED’s recipes for combating inflation in the USA, due to the overheating of the domestic economy in the post-Covid phase, were adopted by the ECB in Europe, even though the origin of inflation was commodities, particularly energy (agflation). This was done to maintain the euro/dollar exchange rate as stable as possible, which was reversed for several weeks in the fall of 2022. Similarly, lockdowns and factory closures in various parts of China have contributed to lowering the price of oil, making the energy situation less dramatic in other parts of the world.
Pressure on stocks and bonds
The ongoing series of interest rate hikes by central banks, which seem to be more sailing by sight than having charted a course to their destination, will continue to depress both the bond and stock markets. Therefore, bonds and stocks do not seem to represent the best investment for 2023. Although the average returns for bonds are becoming interesting for long-term investors, even though they are significantly lower than the inflation rate, the stock market is suffering from reduced liquidity and prospects of a global recession. In this context, large technology companies, which were at their peak during the pandemic, seem to have entered a new critical phase marked by continuous announcements of mass layoffs.
The new course of commodities
Investing in commodities turned out to be the best investment (in speculative terms) between 2021 and 2022. Since then, the wind seems to have changed for all these assets: metals, agricultural, and especially energy, after reaching their highs, have started a strongly bearish phase. Just think of gas, which after exceeding 300 euros per megawatt-hour in August 2022, ended the year well below 100 euros per megawatt-hour, even reaching values lower than before the Russian invasion of Ukraine.
Cryptocurrency crash
After years of record highs (and volatility), favored by the liquidity of the expansive policies perpetuated by central banks, cryptocurrencies have proven to be what they are: a highly speculative asset without an underlying (intrinsic value), whose market price is dictated only by the relationship between supply and demand, with all the distortions that may arise from it. For this reason, in a few years, it has gone from being the best investment, in speculative terms, to being the worst by far. Just think of the value of Bitcoin (the most famous and traded cryptocurrency) which, in this beginning of 2023, seems destined to stabilize around a quarter (-75%) of the highs reached in the fall of 2021 (over $66,000). Certainly, the series of failures of crypto-exchanges such as FTX and BlockFI, which revealed practices that were anything but transparent and legal, did not help and caused the trust of more speculative investors to collapse.
The return to the real economy as a compass
In a scenario like this, where finance seems to offer no grip or solutions, investors looking for the best investment have no choice but to look back at the real economy, which was overlooked during the turbo-finance years. The first evidence comes from the better prospects of the US economy, which, despite strong rate hikes, continues to run. One need only think that the unemployment rate in the United States fell to 3.5% at the end of last year, with job creation well above expectations. The US situation is certainly rosier than Europe’s, struggling with its worst energy crisis and internal divisions on how to manage it. The situation is even worse in China, which, after recording its worst GDP growth (for the first time below 3%), is struggling with the difficult transition from the “zero Covid” policy to the relaxation of restrictions, but with a poorly vaccinated population, especially among the elderly.
US income properties as a safe haven, inflation hedge, and source of returns
Due to the dynamism of the economy just seen, the US real estate sector is particularly attractive to an investor looking for the best investment to protect their assets and more. This is also because the decline in home purchases (-30% in one year) due in large part to first home mortgages, which have reached rates never seen before, has stabilized purchase prices. First and foremost, it is a defensive investment in dollars, a currency that has demonstrated all its strength and with which the world’s main assets are quoted. Second, the structure of the US real estate market (most citizens, especially those of working age, do not own the home they live in) makes rental income for property owners very advantageous. Currently, values in the income property sub-segment range from 5% to 10%, which largely or completely protects against inflation expected throughout 2023. Third, in a medium-long-term perspective, it is a high-yield investment capable of beating inflation. In the case foreseen by central banks that inflation will fall and return under control in the years to come, the recently seen returns will amply reward the investor year after year. In the less likely scenario that inflation continues to run, the value of real estate will continue to grow accordingly, rewarding the investor at the time of sale.
Invest in US income properties with OPISAS
If you want to learn more about real estate investments in the USA and the opportunities available at the moment, you can write to contact@opisas.com to make an appointment with a consultant.
