Top Investing Trends For 2024 (2024)

What a year it’s been. As January 2023 rolled in, inflation and rising interest rates were the most nettlesome thorns in America’s side. Those barbs dug deeper as the Federal Reserve hiked rates four times—a move that would bode well for savers but loom large for spenders.

So, what should be on investors’ radars for 2024—especially with the recent prospect of lower interest rates to come in the new year? These trends can help you plan ahead for all of your investing goals.

1. Last Year’s Biggest Winners

Cash looked to be king in 2023, with sky-high interest rates across high-yield savings accounts and Treasury bills alike. But multiple bank failures—in domino-like succession, no less—spooked consumers and investors, leaving anyone with a bank account wondering whether their money would be safe.

The safest bet, or at least the one with the greatest returns, wound up being the stock market. By mid-December, the S&P 500 was up nearly 25% and the Nasdaq had notched a whopping gain of nearly 43%.

Big winners included the formerly-named FAANG stocks. Now dubbed “The Magnificent Seven,” Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Nvidia (NVDA), Meta Platforms (META), Microsoft (MSFT) and Tesla (TSLA) have all posted gains of at least double the S&P for the year.

The very biggest gainers were less-than-household-names, though, such as Soleno Therapeutics (SLNO) and Applied Optoelectronics (AAOI), whose year-to-date gains were in quadruple-digit territory.

Magnificent, indeed.

2. Bonds Are Coming Back in 2024

When the Fed dropped pandemic-era interest rates into the near-zero range, the housing market said, “Hold my beer.” The refinance market boomed alongside home sales, and those lucky enough to snag a new mortgage or lower rate now have a souvenir of a financial era that American consumers will likely never see again.

Experts say higher interest rates are here to stay—and that’s a good thing for longer-term investors, especially in the fixed-income market.

“We now expect U.S. bonds to return a nominal annualized 4.8% to 5.8% over the next decade, compared with the 1.5% to 2.5% we expected before the rate-hiking cycle began,” says Andrew Patterson, a senior international economist with Vanguard.

Will this mean that the traditional 60/40 portfolio becomes sexy again? It’s possible. But no matter the ultimate status of that particular asset allocation model, 2024 will likely be the year that investors no longer look at their fixed-income allocation with disdain.

3. But What Kind of Bonds?

If you want to beef up your fixed-income holdings in the year ahead, experts say that short-term corporate bonds should be a top consideration. Whether you invest through an exchange-traded fund (ETF), mutual fund or individual bonds, you should find higher yields and lower risk with corporates—and at rates that exceed T-bills, which currently have yields above 5%.

“The patient investor can acquire good quality, short-dated corporate bonds yielding 6% or more,” says Stash Graham, managing director with Graham Capital Wealth Management.

Short-dated bonds—a term used synonymously with short-term bonds—can help protect portfolios from interest rate risk since the Fed’s next rate moves remain to be seen. And Graham admits there’s still a reinvestment risk, but that’s a burden his firm is willing to bear.

“Overall, the combination of limiting market and credit risk while generating 150 basis points more than the forward earnings yield of the S&P 500 (4.4%) looks to be an attractive risk-versus-reward as we enter the new year,” he says.

4. Savings Will Remain Very Cool

The Fed rate hikes haven’t been all bad news. The top high-yield savings accounts have annual percentage yields (APYs) of 5% and higher. Those with cash stashes beyond FDIC limits can earn well over 5% with T-bills. Still, the Fed is signaling that rates will likely drop in the new year, which would definitely impact what investors of every ilk earn on their extra cash.

But even if, or when, rates drop and you earn a wee bit less on your savings, you still have savings—which is very cool. Cash can be a key part of every savvy investing strategy, even when it’s not in a brokerage account. Perhaps paradoxically, the wealthier you are, the more likely it is that you have debt. But your wealth also makes it easier to pay off that debt. And wealth is often reflected in high savings. That’s important because debt has gotten more expensive in the current high interest rate environment.

To prep for the year ahead, investors might want to go ahead and bump up their Roth IRA contribution by a buck or twenty. They could give their automatic monthly contributions to savings a boost as well.

While they’re at it, they might even want to find a banking partner that pays them what they’re worth. The days of laughable APYs on savings—and checking accounts, for that matter—are over.

5. Think Smaller When You Think Stocks

Google, Apple, Tesla—the members of “The Magnificent Seven,” alongside the top 10 largest names on the S&P 500, have dominated the stock market in recent years, due to their size as well as share-price gains. As a result, these heavy hitters trade at a premium—roughly 28.5 times earnings—while the rest of the 490 stocks in the S&P 500 trade in the 17 times earnings range as of the end of November.

In 2024, you might want to pay attention to mid- and small-cap stocks trading at a discount to historical rates, says Stephen Kolano, a certified financial analyst and chief investment officer at Integrated Partners.

“Small caps have underperformed large caps since approximately 2015 and currently trade at a valuation of 19.5 times compared with their 20-year average price-to-earnings ratio of 21.3 times,” says Kolano.

That’s not a shabby discount, especially for those who prefer to hand-select their holdings. By searching for opportunities among the Davids instead of the Goliaths, Kolano says you could unlock growth opportunities with companies well-positioned to accelerate earnings due to policy easing and post-pandemic supply chain improvements.

6. Have Assets? Get Thee to an Advisor Offering Direct Indexing

Direct indexing is a savvy strategy that can net big savings come tax time. The strategy can also help diversify holdings away from the S&P 500’s heavy hitters, especially for those who invest through mutual funds and ETFs. And it has become less expensive and easier to use by more investors, not just the wealthiest.

Direct indexing involves replicating an index by buying the stocks (or bonds) that constitute it. Why bother? One reason to do it is because the strategy lets you emphasize some constituent stocks or some other aspect of the index you like. Likewise, you can deemphasis some stocks or other aspect you’re leery of.

In 2024, Cyrus Amini, a chartered financial analyst and chief investment officer at Helium Advisors, is bullish on direct indexing. “The approach enables more personalization, while also being cost effective and can help investors avoid overloading their portfolio with highly priced stocks or sectors in favor of areas with more potential going forward,” he says.

If you’ve got plenty of taxable investable assets and you haven’t looked under direct indexing’s hood, put direct indexing on your to-do list for the year ahead. It’s a strategy most suited to those who stand to benefit from ongoing tax-loss harvesting—which isn’t a strategy used in retirement accounts.