3 Money Mistakes To Avoid in 2023 (Put Your Money to Work)

As expected, 2023 has brought economic uncertainty, and the Federal Reserve has continued to raise interest rates to stave off inflation. Federal officials have estimated one more rate hike this year based on inflation levels. Eventually, the central bank will stop raising rates, but what do you do until then? Here are some mistakes to avoid in the last few months of 2023, so you can put your money to work for you.

Key Takeaways:

• The Federal Reserve will likely raise interest rates again before the end of 2023.
• With higher interest rates, it’s a mistake to invest in growth companies, which take on more expensive debt and become less valuable.
• Move your money out of a checking account and into an account where you can earn interest, such as a savings or money market account.
• Timing the market will never pay off, so invest consistently over the long term instead.
• If you still feel nervous or unsure about the market, speak with a financial expert who can advise you on ways to generate long-term wealth.

Avoid Growth Stocks

While there’s a case to be made for avoiding growth stocks at all times, you certainly want to avoid investing in these companies in 2023. Based on past data, it’s currently one of the worst times to invest in growth stocks. A growth stock refers to a share in a company that’s expected to grow quickly — well above the average market rate. Rather than paying dividends, companies reinvest those profits to facilitate short-term growth. Investors usually buy growth stocks hoping that their shares will rise quickly so they can earn capital gains when they sell them.

Growth stocks are a gamble, and it’s a bad time to be gambling right now. Growth companies traditionally take on more debt, so they’re naturally more impacted by rising interest rates. When debt becomes more expensive, growth companies have less value. That means less money for their shareholders.

Instead, in 2023, focus your investments on value stocks. These companies usually have stable revenues, and people continue to use them regardless of the current state of the economy. What’s more, they often have a decades-long history of paying increasing dividends. That’s key because it proves those companies continue to pay their shareholders even in poor economic cycles, such as a recession. In 2023, value companies will be a much better investment than growth companies.

Keep Your Money Out of a Checking Account

You probably already know that checking accounts have horrible interest rates. In 2023, keep only what you need for bills and discretionary spending in your checking account, and move the rest into an account that can make you some additional money. If you’re nervous about the market, you can keep your money in cash by placing it in a savings or money market account. These accounts may offer rates up to 3% or 4%, so you’re earning more interest on your money than if it sits in a checking account.

Currently, the money you have in a checking account becomes less valuable every day. Determine how much you need to keep in your checking account to cover your living expenses, and add a buffer if you’re worried about overdrawing or falling short of minimum balance requirements. Then find another place for the rest of your hard-earned money so you’re earning something on it rather than nothing.

Don’t Try To Time the Market

Over and over, people try to time the market — and they almost always fail. After all, no one has a crystal ball telling them exactly what the market will do in the next year. Research from leading financial companies like Charles Schwab (and many others) shows that investing is about time, not timing.

That means even in periods of economic uncertainty, like 2023, it’s better to invest consistently rather than waiting for the perfect time based on expected market conditions. Gradually purchase stocks from good companies, and don’t worry about timing your investments perfectly. If the market drops, resist the urge to panic sell. Be consistent. For inspiration, look to Warren Buffett, one of the greatest investors in history. Buffett focuses on purchasing quality stocks at a discount, choosing to invest in those companies for the long term.

In 2023, it’s a good time to look for undervalued stocks. If you’re unsure where to start, consider the big companies you use consistently, such as Coca-Cola, Procter & Gamble, and Walmart. You can also buy a low-cost index fund, which is a bundle of stocks tied to a financial market index, including the Standard and Poor’s 500. Whatever you do, be decisive and invest consistently. When the market rebounds, which it will, you’ll reap the rewards of your consistency.

Bonus: Listen to the Internal Revenue Service

Besides the above three tips, here’s one more free piece of advice for 2023: Listen to the tax code and the IRS, not the money managers you watch on cable television. Right now, the IRS says to invest in companies that pay dividends. Choose the long-term route, invest consistently, and allow them to accumulate. If you see someone on TV telling you to panic, ignore them. For now, refrain from doing anything too crazy with your investments, and remember that slow and steady wins the race.

As you look to the end of 2023, you might feel discouraged by the market, but you don’t need to be. You can make your money work for you even in an uncertain economy. Follow these strategies to avoid growth stocks, move your money out of a checking account, and focus on consistency over timing. Refrain from panicking, and have the mindset of investing for the long term. With these tips in mind, you can continue to create wealth well into 2024 and beyond.

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