The 5 best investments for 2023

Red-hot inflation, federal interest rate increases, bank failures, and countless other economic events over the past few years have made it difficult for investors to determine where they should put their money and feel confident doing so.

If you haven’t taken a hard look at your portfolio in a while, it might be a good time to revisit it to determine if your current asset allocation still makes sense for you and your goals, or if it’s time to switch things up.

The 5 best investments in 2023 

To make things a little easier, the Fortune Recommends^TM editorial team rounded up a few of the most promising investments, according to experts, for you to consider. 

1. Treasury bills (T-bills): Best for those with a lower risk tolerance 

What to know: Treasury bills, sometimes referred to as T-bills, are short-term securities issued by the U.S. treasury that are backed by the U.S. government with terms ranging from four weeks to 52 weeks. For the duration of your term, you’re agreeing to lend the U.S. government money in the form of this bill, which is usually sold in increments of $100. When your treasury bill reaches maturity, you’ll get your money back—plus interest. And, unlike other savings vehicles like certificates of deposit (CDs), you can sell a treasury bill before it matures without paying a penalty. 

“I have been advocating individual savers as well as portfolio managers to optimize their investment returns by allocating to short term Treasurys, such as T-bills or treasury floating rate notes,” says Robert Michaud, Chief Investment Officer of New Frontier Advisors. “For professionally managed portfolios, this leads to a small improvement in risk adjusted return. However, for an individual saver, this can lead to a dramatic increase in interest earned on savings.” 

How to invest: You can invest in treasury bills directly from the U.S. government via the TreasuryDirect portal, although treasury bills can also be purchased and sold through your bank or brokerage.  

2. High-yield savings accounts: Best for those who still want access to their money 

What to know: High-yield savings accounts work in the same way as traditional savings accounts. It’s a deposit account at a credit union or bank that you can use for saving and earning interest on your money. The key difference is that high-yield savings accounts boast higher APYs than traditional savings accounts. The national average rate for a traditional savings account stands at 0.37%, whereas many high-yield savings accounts available on the market offer APYs north of 4% or even 5% in some cases. 

The good news: when inflation is running hot and the Fed raises the federal funds rate, borrowing becomes more expensive and financial institutions will up the ante on their savings accounts to reel in customers, making this kind of account an even more attractive option right now. 

How to invest: Many banks and credit unions, as well as online banks and fintechs offer high-yield savings accounts. Ask your bank about their product offerings and current rates to find the best account for your needs. If you opt to open an account at a different financial institution, be sure to verify that that institution offers FDIC or NCUA insurance—that way, your deposits will be insured up to $250,000. 

3. Certificates of deposit (CDs): Best for those who have a specific timeline in mind and won’t need access to their money before then 

What to know: A CD is a type of savings account that offers a fixed interest rate on a lump-sum deposit for a set period of time. Because the bank or credit union is hanging onto your funds for a set amount of time, CDs usually carry higher APYs than other types of deposit accounts. Because CD rates are fixed and won’t fluctuate based on changing interest rates or market volatility, this makes them an ideal investment for long-term investors who want to grow their money, without having to stomach any market bumpiness. 

Right now, the average national rate for a CD stands between 0.18% for a 1-month CD and 1.35% for a 5-year CD, although there are countless high-yield CDs on the market offering rates as high as 5.15%. 

How to invest: You can invest in a CD directly through your bank, credit union, or brokerage. Although, before you choose a CD, make sure you take the time to compare rates and read the fine print associated with your CD. Most CDs will not allow you to make additional deposits after your initial deposit, so you’ll need to come prepared with the amount you want to tie up in your CD until it reaches its maturity date. Dipping into your funds before then will likely lead to steep early withdrawal penalties. 

4. Alternative investments: Best for those who have extra capital and a higher risk tolerance 

What to know: Alternative investments encapsulate assets that fall outside of the traditional basket of stocks, bonds, and cash. In addition to real estate, this could include commodities, hedge funds, cryptocurrency, non-fungible tokens (NFTs), art, antiques, and more. While your entire portfolio shouldn’t be made up of alternative investments, some exposure to these non-traditional assets could help you diversify your portfolio, especially in times of extreme volatility. 

“We recommend enhanced diversification through alternative investments, which provide reduced correlation and increased return potential in a modern portfolio of, say 40/30/30 equities, bonds, and alternatives, respectively,” says Milind Mehere, CEO and Co-Founder of Yieldstreet. “This modern portfolio is more accessible to investors than ever, including the ability to invest in alternative asset classes (such as real estate, private credit, and private equity) within tax-advantaged accounts.” 

How to invest: The easiest way to gain exposure to alternative investments will likely be through your brokerage, an investment app, or exchange. 

5. Real estate: Best for those hoping to adopt a passive income stream 

What to know: Real estate can be a lucrative investment long-term and is one way to diversify your portfolio, increasing exposure to different markets and potentially even creating a passive income stream for yourself. 

“An investment in private real estate offers diversification, tax-deferred income, cash flow and long-term appreciation, and a low correlation to public markets. Given the current volatility in the market, a low correlation to public markets is a massive benefit to private real estate investing,” says Lindsey Collings, AVP at MLG Capital, a private real estate investment firm. “Private real estate typically has a low correlation with the S&P 500 and public REITs (which are traded on the same exchange as stocks and bonds), and much less volatility, meaning investors can have the unique opportunity to grow their capital despite what’s occurring in the public markets.” 

How to invest: There are several routes you can take to start investing in real estate, the most obvious being to purchase a home or rental property. Other strategies might include investing in real estate investment trusts (REITs), which are companies that own, operate, or finance income-producing real estate and then collect rent, operating expenses, or interest payments from the properties in its portfolio and use those funds to pay dividends to shareholders. You can buy shares using a taxable brokerage account or a tax-advantaged retirement account, like your workplace 401(k) or an IRA. 

What to consider when choosing your investments

If you’re not sure which assets will be best suited to you and your investment style, there are a few factors you might consider to help you narrow down your options. You’ll want to think carefully about your: 

• Investment goals: Ask yourself what you’re investing for. Are you investing for your child’s education? Are you hoping to adopt a passive income stream so that you can leave your 9 to 5 and start your own business? Knowing what your goals are can help you shape your investing strategy and portfolio mix. 
• Time horizon: A time horizon in investing refers to the length of time you expect to own your investment before you’ll need to access your funds. If your goal is to create a passive income stream, you’ll need to consider more liquid investments like a rental property, for example. However, if you’re investing for retirement income, you might consider investing in stocks because you have the time to bounce back from any potential losses.  
• Risk tolerance: Your risk tolerance is your ability to stay the course even when your investments aren’t doing well. Your time horizon will also play a role here because a shorter timeline for hitting your investment goals could make you more risk-averse and vice versa. Consider how well you’d handle extreme market swings and potential losses, and craft your portfolio with that in mind. 

The takeaway 

Investing as a whole is a risky undertaking. While there are certain assets that may be deemed more secure, or perhaps are performing better based on current market conditions and the economic climate, that isn’t synonymous with zero-risk. Make sure you understand how the assets you’re considering adding to your portfolio work and what kinds of factors may impact performance to determine if they’re right for you.