Investors across the world are worried that 2023 might bring with it a recession. Morningstar expects growth to trough in 2023, and then accelerate in 2024.
“A formal recession in 2023 remains a 30%-50% possibility, given our expectations that GDP growth in the first half of the year is close to zero. But we think there’s been too much of a focus on the question of whether a recession will or won’t occur—the more important question is the severity of any potential recession. We expect any recession to be mild, as GDP growth is on track to rebound strongly in 2024 and after, as the Federal Reserve pivots to monetary easing,” says Morningstar Research Services’ Head of U.S. Economics, Preston Caldwell.
What Should Investors Do?
Morningstar Investment Management’s (MIM) global chief investment officer Dan Kemp sees some fundamental weakness in certain assets, but believes they can be bought at sufficiently lower prices to create a more fruitful ground for investors. “The importance of this dual focus when undertaking investment analysis tends to be lost in markets characterised by excessive optimism or pessimism. As investors become increasingly focused on the near-term path of prices—confident of either a continuation of the past or a sharp reversal—many forget that most paths lie between these two outcomes,” Kemp says, adding that this is why MIM adopts a granular, fundamental and valuation-driven approach to investing, acknowledging that expensive markets can provide opportunities and cheap markets may be a source of threats.
However, investors in different stages of their life cycles have different needs. In Morningstar Investment Management’s Outlook for 2023, the MIM team has highlighted seven tips that investors in their 20s can take, to help them succeed financially.
7 Tips Investors in Their 20s Should Consider in 2023
Action 1: Start with the “why” of investing - Goals are a north star. Research shows that 71% of people change one of their top 3 goals by doing a simple review comparing to a master sheet of common goals.
Action 2: Reframe budgeting – Young people can struggle to budget as psychological “wants” are perceived as needs. Understand the root of those needs and find ways to address or prioritise them.
Action 3: Shift the conversation to value drivers – Could you benefit from broader financial planning? All too often, you think about investing first, but the foundations are just as important.
Action 4: Start small, escalate regularly – Many investors struggle to get started with investing. Starting small and increasing regularly can be an effective method to increase wealth.
Action 5: Consider behavioural biases – Research shows that behavioural coaching can add meaningful value. Or conversely, bad behaviour is destructive. So be aware of your own behaviour, and biases.
Action 6: Consider different portfolio combinations – Meeting goals is an individual experience and tracking the S&P500 or FTSE 100 or TSX 60 is not for everyone. Embrace portfolio combinations that you feel positive about, perhaps including ESG.
Action 7: Prepare for a crash – Over the investing lifetime, investors are likely to experience 5+ market crashes. The response to these events will determine their ability to reach their goals. The better they are prepared, the less likely they are to make mistakes.
