Last year was a tough one for investors. All three major indexes slid into bear territory. And most of our portfolios finished the year in the doldrums. The good news is down markets don’t last forever. But right now, at the start of 2023, we don’t know exactly when recovery and growth will happen.
Difficult situation? Not necessarily. I’ve got even more good news for you. There’s a way to invest for safety and growth. This strategy should help you — no matter what the market does this year. If you have $100,000 — or even much less — to invest, you can apply the ideas below. So, let’s start the year off right and find out where to put our money to work in 2023.
Safety first
Let’s talk safety first. It’s on all of our minds after seeing so many top stocks drop in the double digits last year. There are two great places to find safety. First, dividend stocks. And second, companies in industries where even an economic crisis won’t hurt demand for their products or services.
Dividend stocks are a good bet because they guarantee you recurrent income. So, even if the stock itself didn’t perform well during a particular year, you’ll still benefit from a dividend payment. An excellent deal, especially during tough market times.
How to choose a dividend stock? The list of Dividend Kings is the perfect place to start. These are companies that have increased their annual dividend for at least the past 50 years. This indicates dividend growth is important to that particular company. So, you might be able to count on the stock for dividend growth well into the future as well.
You’ll want your dividend stock to hold earnings growth potential, too. Even if it’s sensitive to the economy.
An excellent example is Target (TGT 1.72%). Shares of this Dividend King slid 35% last year. The company’s struggled with inflationary pressures — and so have its customers. That’s weighed on earnings. But shareholders are benefiting from a $4.32-per-share annual dividend. And in spite of today’s tough economy, Target still managed to increase comparable sales for 22 consecutive quarters through the third quarter of last year.
What we absolutely need
Now, what about that second way to add safety to our portfolios? That’s through companies selling products or services we absolutely need.
The healthcare industry is a great choice. People can’t go without their prescription medicine, treatments, or surgeries. And this equals a certain level of security for healthcare companies’ recurrent revenue. Drugmaker AbbVie (ABBV -0.26%), for example, has grown its earnings in the triple digits over time.
Let’s move on to growth now. History tells us market crashes and downturns always are followed by better days. So, it’s time to prepare. And that means it’s time to pick up stocks that can drive growth in a bull market.
Here, we should consider stocks that have started to outperform the general market — but for a reason. And we should consider growth stocks that have suffered — but have strong long-term prospects.
An example of a recent outperformer is Vertex Pharmaceuticals (VRTX 1.82%). The biotech company already has a billion-dollar cystic fibrosis portfolio. But the company now is submitting a candidate for blood disorders to regulators. This could represent another blockbuster for Vertex. And more revenue growth should support share price growth over time.
A huge selection of growth stocks
As for growth stocks that have suffered, we have a huge selection. Economic headwinds have left stocks like Etsy (ETSY -0.97%), Amazon (AMZN 2.10%), and Teladoc Health (TDOC 2.25%) at dirt cheap valuations.
Recovery won’t happen overnight. But when the market situation improves, these companies could be among the first to take off. They’re market leaders, have a strong customer base, and have a track record of revenue growth.
AMZN Revenue (Annual) data by YCharts
Finally, you should maintain an opportunity fund. That way, if an interesting buying opportunity arises at some point during the year, you’ll be ready.
How to divide up your money among these sorts of stocks? It depends on your comfort with risk. If you’re a cautious investor, for example, you’ll want to put more of your money in the safer areas mentioned above and less in the riskier options. For instance, you might consider putting $60,000 into the safety plays, $20,000 into growth areas, and hold $20,000 in your opportunity fund.
And, as I mentioned above, you can follow this plan even if you have a lot less to invest. Finally, we’re all hoping 2023 will usher in a new bull market. But if it doesn’t, don’t worry. If you choose your investments wisely and hold on, you’re likely to win over the long term. So, no matter what the market does in 2023, it still may be an important step along your path to wealth.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon.com, Target, and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Amazon.com, Etsy, Target, Teladoc Health, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.