4 of the smartest stock market investment ideas I have right now

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I have a wide choice of assets to choose from when considering an investment. This includes bonds, commodities, property, and stocks. Even though I have exposure to several asset classes, my main focus is on the stock market.

It’s been a wild ride in 2022, with various economic, political, and social factors causing volatility. Based on where we are right now, here are my top stock market investment ideas and the reasons behind them!

1. Dividends to combat inflation

I think high inflation will continue in the UK well into 2023. In fact, I can’t imagine it’ll get back to the 2% target level for the foreseeable future. To help prevent my cash being eroded in value, I want to keep using dividend stocks to pick up income.

It’s not a perfect hedge. There’s no guarantee of future dividends being paid by any company. Yet by investing in stocks that have a strong track record over time, I can help to balance out inflation. For example, if I invest in a stock with a 5% dividend yield and the inflation rate is at 4%, I can aim for a real positive return.

2. Small investments into cyclical sectors

Given that the UK is likely already in a recession, I want to start putting small amounts of money in struggling areas. For example, property is a cyclical sector. During recessions it typically performs badly but recovers and profits during an economic boom.

I feel it makes sense to buy property related stocks now, given that the related shares have fallen significantly in value this year. The risk is that it continues to fall, but that’s why I’m going to invest over time in small chunks.

3. Buying stocks with low debt levels

I believe that UK interest rates will hit 4.5% next spring. Even though I don’t see it heading much beyond that, rates will probably stay high for some time. This will be a negative for FTSE 100 and FTSE 250 stocks with high debt levels. Servicing and issuing new debt will be much more expensive with higher interest costs.

Therefore, I’m interested in researching stocks that have low debt-to-equity levels. It’s rare to find a company with zero debt. But the lower the amount on the balance sheet, the better I think it could perform next year.

4. Banks could have a great 2023

The recent Q3 earnings season was good for major UK banks. Rising interest rates mean that the banking sector can increase revenue from net interest income. Given my view of where interest rates are heading next year, it logically follows that banks should continue to benefit.

I do need to be careful that a UK recession doesn’t hurt a particular bank due to loan defaults. I feel I can reduce this risk by owning a bank that has strong corporate and investment banking divisions, as well as retail accounts.