The value of property snowballed throughout 2022, with the average house price in the UK in October being £296,000. Comparatively, the average house price in December 2021 was £275,000 – a 7.6% increase over 10 months.
But what does this mean for investors in 2023?
Well, firstly, the market is expected to slow down, and potentially even dip, this year. The market blossomed last year following a trend of post-Covid growth and high demand. However, with inflation, the rise of house prices, and the cost-of-living crisis, many are finding the housing market to be unaffordable in the current climate.
It is therefore unlikely that house prices will continue to grow at the rate experienced in 2022, in fact, it would not be a surprise if we see house prices fall in 2023.
As an investor, this should be seen as an opportunity rather than a catastrophe. If house prices begin to fall, it is expected that this will only be a short-term blip rather than a permanent change, and that the market will start rising again, with an overall estimated rise of 6.2% by 2027. This means that you will be able to invest in UK properties while prices are low but set to increase, greatly improving the potential opportunity for more profit.
But how can you best use the market to your advantage and maximise your cash-flow?
What Are Your Goals?
Setting your targets or goals for the year is the best place to start when creating an investment plan. You need to be asking yourself what is it you are looking for from your investments? Do you want to invest in high-risk, potentially high-reward projects, or more stable ones at a lower interest rate? How many projects do you want to invest in? What kind of returns are you aiming for, and how are you going to achieve this?
Not only is goal setting important but having a reward system in place can help to motivate you and to track your progress.
You may find that hitting your target is reward enough for you, however, using a more tangible rewards system can also be effective in keeping you on track (and let’s be honest, who doesn’t enjoy an excuse to treat ourselves!).
This treat can act as an almost ‘carrot on a stick’ and push you harder to achieve your goals.
Preparation is Key
Ensuring that you are prepared for the coming year is vital to whether you are successful or not. This includes carefully analysing the investment opportunities presented to you.
Many people focus on the return on their capital rather than the return of their capital. In other words, investors can sometimes be so concerned with how much interest they can earn that they can lose focus of the risk profile of the opportunity and the likelihood of capital repayment.
The first thing you should consider with any investment deal is how likely you are to receive your capital back. The capital you invest is always going to be more than what you could earn through interest, so the importance of ensuring you will receive this capital back is greater than the amount of interest you can earn.
Top Tips for Setting Financial Resolutions
Schedule yourself some quiet time – This could mean going for a walk or just locking yourself away for a couple of hours. Use this quiet time to think carefully about what your aims are for this year and how you can best set yourself up for success. Although we are looking at this through a yearly lens, we suggest putting this into practice every quarter or every month.
Take time to look at past performances – One of the best ways to improve your investment practices is to look back at your previous investment performances, analysing what worked well and what didn’t, so that you can identify practices that have brought you success.
You can also look at the past performances of investments you are interested in, and how you can use this information to your benefit – keeping in mind that past performance doesn’t guarantee future results.
Don’t do everything in one session – It can be tempting when you’re on a roll to try and plan everything in advance, leaving you with very little flexibility to adapt to any changes in the market. Take your time over your plan, its fine to come back to it after a couple of days and change things if you have been struck by some inspiration.
Be inspired – Talking of inspiration, it is important to look at what other people are doing and to use this information to amend your own plans. You can learn from other peoples’ successes and failures – however, don’t get too bogged down with others’ strategies as they won’t all work for you. Use their experience to your own benefit.
Investing in 2023
Be realistic – When planning for 2023, you will want to set targets that are ambitious yet realistic. Overly ambitious resolutions can be difficult to hit and therefore cause you to lose motivation as it feels as though you aren’t succeeding (even if you are having a good year overall). You will also need to look at what is possibly going to happen this year that will affect your plans and the market, such as:
- Are we going to enter a recession?
- How will tax increases affect draw down repayments?
- How will market cycles affect investment?
- How will inflation affect what you invest into? Some retail investment platforms will only offer 4-5% return which is similar to a savings account, and inflation is wearing this down to the point that some retail investment platforms might step away from the market as they don’t see the value in offering this investment service.
- How will increases to interest rate affect the market and your investments?
- How will market fluctuations affect the investment? We’re already seeing the market slow down, so you will need to think about how this effects your investment and your exit strategy.
Balance in Your Plan
Having a balanced plan can help to ensure a successful 2023. This means making sure that your investments are diverse to increase the opportunity to profit and mitigate any losses. Investors often divide their investments into three categories (you can divide these up any way you wish) and you will need to decide how much you are going to invest into each section:
Short Term – Short term investments can be useful in helping you to beat inflation. This can be any investment up to 24 months in length. Short term investments allow you to be more flexible and to change tact if needed.
Longer Term – Longer term investment can be an investment that is 3 or more years.
Retirement – You will also need to consider how much of your investment you are going to put into your retirement plan. This will depend on how old you are, what your pension pot already looks like, and how aggressive you want to be in that plan. Furthermore, you will need to decide whether you are going to keep those funds in a traditional pension pot, utilise an SSAS or be more creative with pension planning using other government schemes such as an ISA or build a cash-flowing asset base.
Become More/Less Diverse
At the start of the year, when looking at the balance of your portfolio, you need to ask yourself: how diverse is my portfolio? And how weighted is my portfolio between passive and non-passive investments?
While it is important to have a diverse portfolio and spread your investments to mitigate risk, the flip side of this is that having too much diversity in your investments means that you may have a lot of plates to keep spinning, resulting in your portfolio being an ungainly beast that is difficult to manage.
How much of your investments are passive or non-passive is also important to consider. How much time you have available to put into your investing strategy will almost certainly define where you focus most of your investment.
If you have lots of available time, and the drive and motivation to put the hours in, you may look to take on more non-passive investments. It is worth bearing in mind that these kinds of investments require you to be constantly managing the investment.
Whereas, if you are working a full-time job, have a family, and any other responsibilities, you might be more inclined to focus on more passive investments; ones that can be increasing your cash-flow steadily in the background and that require significantly less management.
How diversified you go with your investments is completely up to you. What one person thinks is diverse is completely different from another!
There are lots of other ways in which you can set your investment portfolio up for a successful 2023. Sourced Managing Director Steve Moss and Relationship Director John Wilson recently held a webinar discussing their thoughts on planning and preparing for the coming year. Listen to the webinar here.
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