When it comes to analysing ASX shares, one important aspect to dig into is financial strength.

A snapshot of a company’s financial position is found on its balance sheet. 

A quick way to get a pulse check on a company’s financial health is by looking at its net debt position. In other words, its cash reserves against how much debt it has (if any).

I like to invest in companies with cash reserves that comfortably exceed their debts. Avoiding excessive debt helps a company weather economic downturns. And those with big cash balances are rewarded with optionality, having the ability to pounce on acquisition opportunities that may arise in the market or reinvest those funds back into the business for future growth.

What’s more, balance sheets also provide insight into a company’s business model and efficiency. 

The absence of debt often points to a capital-light and self-sufficient business. In other words, the company generates enough money on its own, without needing to rely on external funding.

There are some exceptions to this. For example, ASX 200 shares like Liontown Resources Ltd (ASX: LTR), Chalice Mining Ltd (ASX: CHN), and Core Lithium (ASX: CXO) all currently boast debt-free balance sheets. 

However, these companies are pre-revenue, capital-intensive, and far from being self-sufficient. Instead of debt, they’ve been relying on equity to fund the future growth story, turning to investors to raise capital.

Debt-free ASX 200 shares

Excluding those types of companies, let’s take a look at three ASX 200 shares from different industries that don’t have any borrowings on their balance sheet.

I’ve recently profiled ASX 200 shares with enormous insider ownership, founders steering the ship, juicy gross profit margins, and mission-critical products.

So even though WiseTech Global Ltd (ASX: WTC), Altium Limited (ASX: ALU), Pro Medicus Limited (ASX: PME), and Netwealth Group Ltd (ASX: NWL) all boast debt-free balance sheets, I’ll be looking past them in favour of some new names.

Nanosonics Ltd (ASX: NAN)

First up, Nanosonics is an ASX 200 growth share involved in the business of infection prevention. Its flagship Trophon device disinfects ultrasound probes, replacing what’s primarily been a manual process in the past.

The company operates a razor and blade business model, selling hospitals its Trophon device which requires Nanosonics’ proprietary disinfectant liquid to operate.

Customers pay a bigger upfront price for the Trophon device. But Nanosonics actually makes the bulk of its revenue from the higher-margin consumables sales.

With respect to its balance sheet, Nanosonics ended FY22 with $95 million in cash and no debt. This provides the company with a strong foundation for continued investment in growth initiatives, such as global expansion and product innovation.

Nanosonics has been consistently profitable and operating cash flow positive for several years. 

ARB Corporation Limited (ASX: ARB)

Next up is ARB, the ASX 200 share behind Australia’s favourite 4×4 accessories. 

With origins dating back to 1975, ARB has grown to become the nation’s largest manufacturer and distributor of 4×4 accessories. Its strong local presence is complemented by an export network that extends through more than 100 countries across the globe.

ARB has a long track record of strong cash flow generation and profitability, going back decades. It’s reinvested this cash at high rates of return, expanding its distributor network, product offering, manufacturing facilities, and original equipment manufacturer (OEM) relationships to great effect.

ARB has been debt-free for many years. It finished FY22 with cash reserves of $53 million, ensuring the company continues to be well-placed to take advantage of investment opportunities.

ASX Ltd (ASX: ASX)

Finally, let’s take a closer look at the company that operates the Australian Securities Exchange. 

ASX Ltd is a vertically-integrated, multi-asset exchange group. It’s best known for collecting annual listing fees from companies on the ASX. But it also operates futures and options markets, and offers a range of services including trading, clearing, settlement, and market data.

The company has a debt-free balance sheet, which currently boasts $5 billion in cash. However, a lot of this money doesn’t belong to ASX. Instead, it is collateral put up by clearing participants to cover their margin obligations in the futures markets.

As a result, the company’s balance sheet isn’t as clean as a typical ASX share. This muddies the company’s other financial statements as well. But its lack of reliance on external funding is a positive sign. 

ASX Ltd last raised capital in 2013 when it launched a $550 million entitlement offer. Around half of the proceeds were used to pay down debt, and the company has been debt-free ever since.

The post 3 ASX 200 shares boasting debt-free balance sheets appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today
• 3 ASX 200 automotive shares worth buying despite headwinds: Citi
• Here are the 10 most shorted ASX shares
• 3 ASX shares I’d buy after each fell by over 30% this year
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ARB Corporation, Altium, Nanosonics, Netwealth Group, Pro Medicus, and WiseTech Global. The Motley Fool Australia has positions in and has recommended Nanosonics, Netwealth Group, Pro Medicus, and WiseTech Global. The Motley Fool Australia has recommended ARB Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In recent years, the lithium industry has been one of the most popular parts of the market in 2023.

And it isn’t hard to see why. Thanks to the electric vehicle boom, lithium prices surged to record levels last year. This has led to many ASX lithium shares generating mouth-watering returns for investors.

And while there are fears that prices could be on the way back down now, producers of the battery making ingredient are still well-placed to benefit greatly this year.

Given the sheer number of ASX lithium shares on the local market, it can be hard to keep tabs on which companies are mining the white metal and which aren’t.

Below is a summary of many of the companies already mining and some that are almost there.

Which lithium shares are already producing?

At present, there are only a small number of ASX lithium shares that are actually mining the metal.

During the first quarter, Allkem Ltd (ASX: AKE) produced 17,606 dmt of spodumene concentrate from Mt Cattlin and 3,289 tonnes of lithium carbonate from Olaroz. Management is now aiming to triple its annual production by 2026 and maintain at least a 10% market share.

IGO Ltd (ASX: IGO) recently reported quarterly spodumene production of 361,000 tonnes and lithium hydroxide production of 195,000 tonnes.

Mineral Resources Limited (ASX: MIN) produced 101,000 dry metric tonnes (dmt) of spodumene concentrate from the Mt Marion operation and 64,000 dmt from Wodgina during the first quarter.

Finally, Pilbara Minerals Ltd (ASX: PLS) produced 147,105 dmt of spodumene concentrate in the first quarter. It also recently approved the expansion of the Pilgan Plant to ultimately deliver 1Mtpa of spodumene concentrate from the combined Pilgangoora operations.

Not quite there

A special mention goes to Argosy Minerals Limited (ASX: AGY) and Core Lithium Ltd (ASX: CXO), which are on the cusp of being lithium miners.

Argosy Minerals has completed 98% of the total works required for the 2,000tpa Rincon Lithium Project, located in Salta Province, Argentina. It recently produced 1 tonne of battery quality lithium carbonate during the commissioning period.

Core Lithium’s Finniss operation in the Northern Territory is expected to be up and running later this year. Though, that didn’t stop the lithium developer from making its first shipment of 15,000 dmt of 1.4% Li2O spodumene direct shipping ore last week.

The company sold the lithium to a lithium-ion battery supply chain participant in Fangcheng, China, for a price of $US951/dmt. This valued the shipment at approximately US$14.25 million.

Coming soon

Finally, this is when some other popular ASX lithium shares are due to commence production:

Liontown Resources Limited (ASX: LTR) is targeting first lithium concentrate production in 2024 from its Western Australian operations.

US-based lithium developer Piedmont Lithium Inc (ASX: PLL) is aiming for the first half of 2023.

Sayona Mining Ltd (ASX: SYA) is targeting production during the first quarter of 2023 from its North American operations.

Germany-based Vulcan Energy Resources Ltd (ASX: VUL) is planning to construct its first commercial plant in 2024.

The post Which ASX lithium shares are producing and which are not in 2023? appeared first on The Motley Fool Australia.

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More reading

• Why has the Core Lithium share price already surged 18% this year?
• If I buy $2,000 in Pilbara Minerals shares right now, what could my returns be in 2023?
• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Wednesday

Motley Fool contributor James Mickleboro has positions in Allkem. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Improving the returns one receives from ASX shares might appear like a daunting task. Where should an investor even start when aiming to increase how hard their money works for them?

Well, I believe upping my potential returns doesn’t have to be difficult – or impact my entire portfolio.

Upped my returns by investing in ASX value shares

Let’s assume I held a portfolio capable of providing a modest 5% return annually, including dividends and share price gains.

As per the rule of risk and reward, we can probably assume that’s a relatively safe portfolio, perhaps made up of mainly blue-chip shares.

But what if there was a way to increase my returns by 20% each year without relinquishing my safety net? That’s exactly what a shadow portfolio of ASX value shares could offer.

The market’s 2022 tumble has likely left many ASX shares trading below their intrinsic value, thereby creating plenty of value investing opportunities.

Many of which might be capable of returning 10% – including share price increases and dividends – over the coming years.

How I’d increase my annual returns by 20%

Let’s say I identified a diverse handful of ASX value shares I believe could provide an average annual yield of 10%. What next?

Well, if I were aiming to increase my total returns by 20% each year, I would aim to invest around 20% of the value of my current portfolio in a secondary, satellite portfolio.

At which point, I would anticipate my investments’ performance could look like this:

Portion of my portfolio	Expected annual return
80%	5%
20%	10%
100%	6%

As the above chart shows, by building a portfolio of ASX value shares around a fifth of the size of my current figurative holdings, I could boost my annual returns to 6% – a 20% increase.

Though no investment, no matter how well thought out, is guaranteed to provide returns and past performance is not an indication of future performance.

Diversifying to reduce risk

In another way, however, I believe adding some ASX value shares to an otherwise mainly blue chip portfolio could reduce risks anyway.

That’s because a diverse portfolio can generally better weather the market’s downturns and make better use of its good times.  

Still, on an individual level, value stocks are often riskier than blue-chip shares. Thus, the makeup of an investor’s portfolio should consider their tolerance for risk and volatility.

The post Could an ASX value portfolio bolster my annual returns by 20%? appeared first on The Motley Fool Australia.

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More reading

• Why has the Core Lithium share price already surged 18% this year?
• If I buy $2,000 in Pilbara Minerals shares right now, what could my returns be in 2023?
• How I’d invest $20,000 in ASX shares right now to help build long-term wealth
• 2022 was brutal for Lynas shares. What will this year bring?
• Why have ASX investors been buying Wesfarmers shares to hold?

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Core Lithium Ltd (ASX: CXO) share price is continuing its upward trajectory into the new year.

Its latest gains have come amid exciting news of the company’s Finniss Lithium Project and similar rises among its S&P/ASX 200 Index (ASX: XJO) peers.

Right now, the Core Lithium share price is $1.198. That’s 1.8% higher than it was at Wednesday’s close and 18% higher year to date.

For comparison, the ASX 200 is up 0.98% today and has gained almost 5% since the end of last year.

Let’s take a look at what’s been going on with the lithium favourite over the last 12 days.

Why has the Core Lithium share price jumped 18% in 2023?

This year is shaping up to be a big one for Core Lithium, and its share price has started off strong. Interestingly, however, there’s been no price-sensitive news from the company in 2023.

Though, it did announce the maiden shipment of lithium from its Finniss Project project had set sail last week. The shipment marks its first revenue event. It commanded a price of US$951 per dry metric tonne, or around US$14.25 million.

Just days after announcing the shipment, Core Lithium revealed another significant change to occur in 2023.

The company will relocate from Adelaide to Perth – dubbed “Australia’s lithium hub” by CEO Gareth Manderson – later this year.

But the big news of 2023 is still yet to come. Core Lithium is expected to announce the Finniss Project’s first spodumene concentrate production this half.

How have other ASX 200 lithium shares performed year to date?

The Core Lithium share price has been far from alone in its gains in 2023. Here’s how some other market favourites have been performing so far this year:

• The Sayona Mining Ltd (ASX: SYA) share price has surged 24% year to date
• That of Liontown Resources Ltd (ASX: LTR) has also leapt 26% in 2023
• Shares in Lake Resources NL (ASX: LKE) have soared 13% this year
• Allkem Ltd (ASX: AKE) stock is up 15% year to date
• The Pilbara Minerals Ltd (ASX: PLS) share price has gained 12% in 2023
• Mineral Resources Ltd (ASX: MIN) stock is up 18% year to date

The post Why has the Core Lithium share price already surged 18% this year? appeared first on The Motley Fool Australia.

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• Will Core Lithium turn a profit in 2023?
• Here are the 3 most heavily traded ASX 200 shares on Tuesday
• These 3 ASX 200 lithium shares outperformed all others in 2022
• Could higher global EV sales boost ASX 200 lithium shares?
• Here are the 3 most heavily traded ASX 200 shares on Monday

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Pilbara Minerals Ltd (ASX: PLS) shares certainly have been a great place to invest in recent times.

For example, during the last five years, the lithium miner’s shares have generated an average return of 30.24% per annum.

This stellar return has been driven by sky high lithium prices and would have turned a $2,000 investment into $7,500 today.

What return could Pilbara Minerals shares generate in 2023?

While predicting what Pilbara Minerals shares will do in 2023 is close to impossible, that doesn’t mean we can’t try.

The good news for readers is that one leading broker has just released a note relating to the lithium miner, which could be used as a rough guide of what is possible.

According to the note out of Citi, its analysts have upgraded the company’s shares to a buy rating with a $4.70 price target. This price target suggests that Pilbara Minerals shares could rise 15% over the next 12 months.

If that were the case, it would mean a $2,000 investment becomes $2,300 by the end of the year.

Don’t forget the dividends

Pilbara Minerals also recently revealed plans to pay its maiden dividend in 2023. Commenting on this, Citi said:

We expect PLS to make more cash in FY23/24 than any other stock in our gold/metals coverage universe. We model first franked dividend in 2HFY23.

The broker is expecting the miner to reward its shareholders with a fully franked 11 cents per share dividend, which represents a 2.7% yield at current prices. This would result in shareholders receiving $54 in dividends if they invested $2,000 into Pilbara Minerals shares today.

All in all, this would take the value of your investment to $2,354, which represents a return of almost 18% for the year.

The post If I buy $2,000 in Pilbara Minerals shares right now, what could my returns be in 2023? appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Thursday
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
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• 3 ASX 200 lithium shares brokers just upgraded to ‘buy’
• Why Allkem, Pilbara Minerals, Talga, and Westgold shares are storming higher today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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One key reason why I invest in the share market is to increase my wealth over the long term.

By putting my money into quality ASX shares with a long-term view, I stand to benefit from the power of compounding.

Compounding explains why earning an average 9.6% per annum return would turn a single $20,000 investment into over $300,000 in the space of 30 years.

With that in mind, if I were to invest $20,000 into ASX shares now to try and build wealth, here’s how I would do it.

Find a balance between risk and reward

Investing in the share market is not risk-free like a term deposit or government bond. You can lose money if your investment turns sour. In light of this, I want to buy ASX shares that reward me for taking this risk.

For example, I recently bought Xero Limited (ASX: XRO) shares. It trades on high multiples, making it a higher-risk option. However, given the quality and popularity of its cloud accounting platform and its huge global market opportunity, I believe the long-term rewards from owning its shares are potentially compelling and offset this risk.

Whereas I have stayed well clear of semiconductor company Brainchip Holdings Ltd (ASX: BRN) because the risk/reward is incredibly unfavourable in my eyes. This is because the company has commercially unproven technology in an industry dominated by tech giants with huge budgets. I feel the chances of Brainchip being a success are so slim, it isn’t worth risking capital. Especially when the company already has a mind-boggling $1.2 billion market capitalisation on next to no revenue.

Choose a diverse group of great companies then sit back

I would also look for diversity and quality when investing $20,000 into ASX shares.

While you might be attracted to the tech sector or the lithium industry for the big potential gains, you run the risk of underperforming or losing money if things go awry in either of these areas and you have too much exposure to them.

You only need to look at the tech sector in 2022 to see this. If you had a portfolio filled with tech shares and no exposure to miners such as BHP Group Ltd (ASX: BHP) or the big four banks, you would almost certainly have seen the value of your investment portfolio fall. Whereas a diverse portfolio might have navigated the market volatility better and potentially even generated a positive return.

In light of this, I would build a portfolio filled with quality companies from a few different sectors that I believe have the potential to grow at a solid rate over the long term. By doing this, I can sit back and watch my wealth grow over the long term without having to be too hands-on. Though, that doesn’t necessarily mean set and forget. It would still be prudent to check in from time to time to ensure that the investment thesis was still intact.

All in all, I believe doing the above leaves you well-positioned on your investment journey.

The post How I’d invest $20,000 in ASX shares right now to help build long-term wealth appeared first on The Motley Fool Australia.

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More reading

• If I buy $2,000 in Pilbara Minerals shares right now, what could my returns be in 2023?
• 2022 was brutal for Lynas shares. What will this year bring?
• Why have ASX investors been buying Wesfarmers shares to hold?
• 3 ASX 200 dividend shares with HUGE passive-income potential for FY24
• Forget gold! I’d invest in ASX 200 shares to build a retirement portfolio

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Lynas Rare Earths Ltd (ASX: LYC) share price sank 23% in 2022, a significant underperformance compared to the S&P/ASX 200 Index (ASX: XJO), which dropped by 7%.

Lynas claims to be the world’s second-largest producer of separated rare earth materials, as well as having the world’s largest single rare earths processing plant in Malaysia.

The company’s production includes neodymium and praseodymium (NdPr) used in magnets, and lanthanum, cerium and mixed heavy rare earths.

Lynas reveals that its rare earth materials are used in many high-tech and future-facing applications, including electronics, wind turbines and hybrid and electric vehicles.

What happened in 2022?

A number of different things can affect the Lynas share price.

Resource business success can be heavily impacted in the short term by the selling price of its resources.

In the third quarter of FY22, which covers the three months to 31 March 2022, the average selling price of the company’s rare earths was A$64.7 per kilo. In the fourth quarter of FY23, the three months to 30 June 2022, the average selling price was A$79.2 per kilo.

However, the company reported the average selling price had sunk to A$49.3 per kilo in the first quarter of FY23, which covers the three months to 30 September 2022.

While that’s still a solid price, investors may be worried about a further decline in the rare earths price. In addition, it comes amid the rapidly rising interest rates, which could hurt the global economy and global demand.

Lynas advised that the FY23 first quarter also saw “significant operational challenges, including a complete outage of water supply in Malaysia.” It lost 16 days of production after an equipment failure by the local water supplier.

Will 2023 be better for the Lynas share price?

Lynas is working on a number of growth projects to increase the scale of the business.

It is accelerating production capacity at Mt Weld, completing the rare earths processing facility in Kalgoorlie, enhancing its operations in Malaysia, and planning a US-based rare earth processing facility in Texas.

Progress on each of those projects could boost investor sentiment about the company.

Lynas said the downward pricing trend had been “triggered by concerns that the 25% production quota increase in China would lead to oversupply”. However, prices started to recover and stabilise in mid-September “once these concerns were found to be excessive”.

The company told investors at the end of October that “future pricing trends will depend mainly on the economic recovery in China, which has seen weak demand in the recent past.”

With the Chinese economy now open after COVID lockdowns, could this mean there’s something of a rebound in demand for rare earths from China?

Bear in mind that interest rates remain high, however, and there is uncertainty about how the global economy will go from here.

The Lynas share price has rebounded more than 10% since 3 January 2023.

According to Commsec data, there are currently four analysts that rate Lynas as a buy, four hold ratings and two sell ratings.

The post 2022 was brutal for Lynas shares. What will this year bring? appeared first on The Motley Fool Australia.

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• Expert reveals best time to buy shares in 2023
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• Why did the Xero share price take such a beating on Wednesday?
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Amid surging inflation and rising interest rates, many investors have likely considered adding gold to their retirement portfolio. The yellow metal is often touted as a good inflation hedge. However, I believe S&P/ASX 200 Index (ASX: XJO) shares could give better protection against the cash-eating measure.

The importance of inflation hedges

Considering the long-term impacts of inflation is an important part of investing for retirement.

Inflation lessens the value of cash. Meaning, what might be a substantial retirement portfolio now, may not stretch as far in the years to come.

That’s why I think it’s worthwhile to consider investing in inflation hedges. Inflation hedges are assets either immune from inflation or capable of growing in value faster than the inflation rate.

One asset often said to house the former quality is gold. The price of gold recently reached an eight-month-high of around US$1,880 an ounce, potentially partially driven by rising demand for its inflation-busting qualities.

However, gold presents what’s known as an opportunity cost. Unlike other investments, it doesn’t pay dividends or interest.

And that’s one reason why I’d turn to ASX 200 shares over gold when building a retirement portfolio.

I’d invest in ASX 200 shares over gold for retirement

While ASX 200 shares generally bring greater risk than gold, they offer a key opportunity – compounding. Many stocks that call the index home pay dividends.

By reinvesting these dividends, a future retiree can compound their investments, thereby potentially growing them at a faster rate than they otherwise might.

Such dividends, alongside potential share price gains, offer the potential for an investor to realise gains at a faster rate than inflation. Thus, ASX 200 shares can act as an inflation hedge.

Additionally, the index houses many of the market’s blue-chip shares.

Blue chip stocks offer exposure to the largest, longest-standing companies. They often boast strong balance sheets, solid earnings records, and loyal customer bases.

Thus, they typically represent a lower-risk investment than, say, growth shares. Such a quality may be important for those building a portfolio designed to last the length of their retirement.

Finally, while gold is trading at around eight-month highs, 2022’s downturn has likely left many ASX 200 shares trading below their fair value.

That means there are likely plenty of bargain buys out there right now, potentially offering a greater opportunity to realise gains.

Though, no investment – whether it be in gold or stocks – can be guaranteed to provide returns or hold its value. Further, past performance doesn’t guarantee future performance.

The post Forget gold! I’d invest in ASX 200 shares to build a retirement portfolio appeared first on The Motley Fool Australia.

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More reading

• Expert reveals best time to buy shares in 2023
• 5 things to watch on the ASX 200 on Thursday
• Why did the Xero share price take such a beating on Wednesday?
• When it comes to ASX 200 dividend shares, is boring better?
• Here are the 3 most heavily traded ASX 200 shares on Wednesday

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Vanguard MSCI Index International Shares ETF (ASX: VGS) suffered through 2022, with the exchange-traded fund (ETF) falling by 14%.

It wasn’t the worst-performing ETF by far. For example, the Betashares Nasdaq 100 ETF (ASX: NDQ) dropped by around 30% last year.

Indeed, it was a rough time for a number of markets and sectors. While the ASX didn’t fall much because of its large weighting to ASX bank shares and ASX mining shares (which did well), there were a number of ASX tech shares that did suffer.

Why did the Vanguard MSCI Index International Shares ETF decline?

An ETF’s return is dictated by the return of the underlying holdings. If the combined return of the holdings is positive (taking into account the size of each position), then the ETF’s return can be positive. Each ETF has a management fee, with this one costing 0.18% per annum, which reduces the return.

If we look at the biggest holdings within the ETF, there are a number of the world’s biggest, most recognisable technology businesses including Apple, Microsoft, Alphabet, Amazon.com, Tesla and Nvidia.

In 2022, the Apple share price fell 27%, the Microsoft share price declined by around 30%, the Amazon share price dropped by 50%, the Alphabet share price declined by around 40%, and the Tesla share price plunged 65%.

Interest rates have soared higher as central banks try to put a lid on inflation. But, this is hurting share prices, particularly ones that have a lot of growth factored into their share price.

Billionaire Ray Dalio, founder of Bridgewater Associates, once said:

It all comes down to interest rates. As an investor, all you’re doing is putting up a lump sum payment for a future cash flow.

What next for the global share market?

According to reporting by Reuters, the World Bank has cut its 2023 forecast to a level where many countries are on the brink of recession. Global growth is now expected to be 1.7% in 2023, which would reportedly be the third-worst year in 30 years, behind 2009 and 2020. The World Bank was previously predicting global growth of 3%.

The Eurozone and US are now predicted to grow by just 0.5%. That’s not great for the Vanguard MSCI Index International Shares ETF considering Europe and the US are where a large majority of the ETF is invested.

Reuters reported that the World Bank said in a statement:

Given fragile economic conditions, any new adverse development – such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the COVID-19 pandemic or escalating geopolitical tensions – could push the global economy into recession.

Rising interest rates may well have the biggest impact in 2023. The US Federal Reserve has continued to be committed to doing what it takes to bring inflation back to normal.

Federal Reserve Chair Jerome Powell continues to talk about enacting decisions to do what’s needed. CNBC reported on comments from Powell in a speech for Sweden’s Riksbank, he said:

Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy.

The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors.

Foolish takeaway

I don’t think the global share market is going to perform strongly for most of the year. I believe that the US Federal Reserve is going to leave interest rates at a high level for longer than plenty of investors would like. However, when interest rates stop rising, it could be a catalyst late in the year, particularly if inflation significantly reduces.

But, in my opinion, the Vanguard MSCI Index International Shares ETF still has a very promising long-term future. The quality of the 1,500 or so businesses is good and I think the global diversification is great.

The post 2022 wasn’t kind to the Vanguard MSCI Index International Shares ETF (VGS). What now? appeared first on The Motley Fool Australia.

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• How I’d invest $300 a month in ASX dividend shares to target a $30,000 annual second income
• 1 in 7 Australians own an ETF: Are these the ones to buy?
• These could be top ETFs for ASX investors to buy in January
• 3 quality ETFs for ASX investors to buy next year
• I’d aim for a $1 million by buying just a handful of ASX shares

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon.com, Apple, BetaShares Nasdaq 100 ETF, Microsoft, Nvidia, Tesla, and Vanguard Msci Index International Shares ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has positions in and has recommended BetaShares Nasdaq 100 ETF. The Motley Fool Australia has recommended Alphabet, Amazon.com, Apple, Nvidia, and Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Despite the perils of predicting the bottom, one expert has stuck his neck out to tell investors when would be the best time to buy stocks in the coming year.

DeVere Group chief executive Nigel Green reckons that the “peak opportunity” for investment will come in just a few weeks — late in the first quarter.

“Until then, unemployment will be rising and there will still be aggressive language from the central banks on the need to stamp out inflation, which by then will be sharply down from current levels,” he said.

“This is, perhaps, when stocks will reach their cyclical bottom, and when investors might be rewarded for taking the plunge.”

The stock market is always forward-looking, so Green warned that inflation will likely still be raging at this point.

“It will still be well above the 2% target set by the central banks.”

Why stock prices could explode in the second quarter

Green predicts that by the second quarter, risk assets like stocks will have already priced in “a cyclical upturn” in the G7 economies.

“The assets that have fallen hardest between now and then may be the strongest performers during this recovery rally, with the best performing days probably at the start,” he said.

“There will be cyclically sensitive sectors, such as industrials, consumer discretionary and autos.”

The catalyst for these returns could be the central banks ending interest rate hikes and an “easing of rhetoric on inflation”.

“As it slowly makes its way down to the 2% target rate in the major western economies, companies [are] cutting back fast, together with signs of economic stabilisation.”

Don’t try to time the market though

Despite his own bold predictions, Green warned investors against trying to pick the bottom.

“Holding cash is tempting, but it suggests an ability to ‘time the market’ — to invest it at an optimum point in the cycle — and this is nearly always impossible,” he said.

“Investors should be starting to position themselves for the cyclical upturn.”

Green also urged portfolios should remain diversified and investors should take “a disciplined approach to putting money into the markets that ignores current trends”.

“There is no ‘right way’ to approach investing, since each individual’s attitude to risk, and time horizon, differs.”

The post Expert reveals best time to buy shares in 2023 appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Why did the Xero share price take such a beating on Wednesday?
• When it comes to ASX 200 dividend shares, is boring better?
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• ASX 200 lifts despite latest Aussie inflation data

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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