3 top investment ideas for 2023

Investing is the key to building wealth and creating financial security. It involves putting money into financial assets such as shares and funds in the hope of generating greater returns than those offered by savings accounts.

Today, literally anyone can invest their money as technology has made it far easier (and cheaper) to do so. With that in mind, here are three investment ideas for 2023.

Dividend stocks for income

One investment approach that is very popular in the UK is investing in dividend stocks. These pay investors cash distributions (dividends) out of company profits on a regular basis.

On the London Stock Exchange, there are a lot of dividend stocks to choose from. And many are generous with their shareholder distributions. For example, insurer Legal & General rewarded investors with total dividends of 18.45p per share last year. At today’s share price, that translates to a yield of 7.2%.

It’s worth pointing out that not all dividend stocks are created equal. Some have fantastic long-term dividend track records while others have patchy track records.

The key with this type of investing, in my view, is to seek out companies that have relatively consistent revenues and earnings, and avoid companies that regularly go through boom and bust cycles (and are likely to cut their dividends at some stage).

Technology stocks for growth

Another type of investment that is popular right now is technology stocks. These are in favour due to the fact that technology is playing a massive role in our lives these days and looks set to play an even bigger role in the future.

One area of technology that could be worth a closer look in 2023 is artificial intelligence (AI). Since the launch of ‘ChatGPT’ late last year, AI has been getting a lot of attention.

There are a number of stocks that offer exposure to AI. For example, all the ‘Big Tech’ companies such as Alphabet (Google), Meta, and Microsoft are active in the space.

My favourite stock for AI exposure though is chip designer Nvidia. Its AI-products are used by all the major players in the industry. This is a higher-risk tech stock. It’s not for those prioritising capital preservation. I see a lot of potential in the long run, however, so I’ve bought it for my own portfolio.

Small caps for big gains

A third investment idea for 2023 is small-cap stocks. These are the stocks of smaller companies.

Research shows that in the long run, small-cap stocks tend to generate higher returns than large-cap (blue chip) stocks. This is due to the fact that small companies tend to grow faster than larger ones.

These higher returns can be seen across the UK stock market. Just look at the share price of small currency management firm Alpha International. Over the last five years, it has risen about 250% (versus a rise of around 10% for the FTSE 100 index).

Now, small-cap stocks are higher risk than large-cap stocks. The share prices of smaller companies can be volatile. Therefore, risk management (through diversification) is crucial.

Where I’ll be investing in 2023

Of course, these investment ideas are not mutually exclusive. There’s nothing to stop an investor embracing all three approaches.

That’s what I’ll be doing in 2023. My portfolio includes tech stocks for growth, dividend stocks for income, and small-cap stocks for outsized returns.