Morningstar Investor users sign in here.

Personal Finance

4 Investment Mistakes to Avoid in 2023

How to accept uncertainty, and prepare your investments for different scenarios.


If in 2022 we invested based on the lessons we learnt from the history of the financial markets, we have been left with a sour taste in our mouths. Now, we wonder what mistakes not to repeat in 2023.

Keep in mind, even though lessons on how investments have behaved over the decades are valuable, they don't always work. 

One example is how correlations between different asset classes have behaved, says Nicolò Bragazza, senior investment analyst at Morningstar Investment Management.

“From 1973 to the end of 2021, the monthly correlation between global equity returns and US bond returns was -0.02 points, ranging from +1, when two assets move together, to - 1, when they move in the opposite direction," Bragazza says.

Based on this data, we can say that holding US Treasuries has offered diversification over the years. However, in 2022 that was not the case.

“The five-year rolling correlation of stocks and bonds is at a 20-year high,” Bragazza says.

“Relying only on historical correlations can be risky or even misleading,” he says, “because the correlation is an 'average' and does not tell us much about the behavior of asset classes during certain market phases”.

The mistakes to avoid

We could feel upset because of these data. Or, we can use them to build stronger portfolios for the future.

Here are four mistakes we should avoid in our planning for 2023.

1. Relying only on historical correlations

The first mistake to avoid, is relying exclusively on historic correlations. Also, keep in mind that diversification isn't solely about how far two asset classes move in different directions.

Morningstar analysts suggest looking for “diversifying fundamentals,” not just “negative correlations.”

For example, the correlations between the industrial sectors were all positive in 2022, but the energy sector had positive returns unlike the others. Having the energy sector in your portfolio would have provided one of the best diversifications in 2022.

The same applies to the US dollar: it is true that Treasuries have fallen in the last year, but the US dollar has appreciated greatly due to the differences in the ways and times of monetary policies between the Federal Reserve and the other main central banks.

2. More investment = more diversification

The second mistake we must avoid in 2023 is thinking that adding more asset classes will increase the diversification of our portfolio.

“2022 is an example of a year where more assets in the portfolio would not have offered more diversification," Bragazza says.

"The only asset classes that have delivered positive returns are the energy sector, the US dollar and some “niche” markets such as Brazilian equities."

3. Using market history as your only guideline

The third mistake is to think that history always repeats itself.

“Knowing history helps put things into perspective, but it's not enough,” explains Bragazza, using the Japanese Yen as an example.

The Japanese currency has generally offered protection in times of market stress; however, in 2022 this was not the case, because the surge in inflation created large differences in monetary policies.

4. Trying to predict the future

The fourth mistake is trying to predict future.

Central banks have powerful systems for making economic predictions and they are often wrong. Can we do better? Probably not.  

“It’s better to spend your time more productively building your portfolio,” says Bragazza.

Tips to Avoid Investment Mistakes

Here are some tips to help you avoid common investment mistakes:

  1. Think about investments in a way that is consistent with your goals.
  2. Take into account the beta (indicator of sensitivity to market fluctuations): a high beta means greater volatility and therefore risk.
  3. Look at investment fundamentals. Early 20th century, global indexes were composed mainly of financial stocks and rail transport, today technology and telecommunications dominate. The fundamentals, therefore, are completely different.
  4. Prepare for different market scenarios and accept uncertainty. Bragazza summarizes it in one word: robustness. “It is the ability to withstand different stages without compromising long-term performance.”


© 2023 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This report has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or New Zealand wholesale clients of Morningstar Research Ltd, subsidiaries of Morningstar, Inc. Any general advice has been provided without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782.

More from Morningstar

Does buying a house stack up financially?
Personal Finance

Does buying a house stack up financially?

Buying a house offers stability and a sense of community. But are you buying for these reasons? Or could your money work harder in other ways? 
Two proven ways to make big money in markets
Personal Finance

Two proven ways to make big money in markets

Many ASX success stories – like JB Hi-Fi, Lovisa, and AUB – have followed one of two strategies: rolling out single store formats...
Mark LaMonica's summer reading list
Personal Finance

Mark LaMonica's summer reading list

His favourite investing books.
The wisdom of Charlie Munger
Personal Finance

The wisdom of Charlie Munger

5 Munger quotes to make you a better investor.
Should I lever up?
Personal Finance

Should I lever up?

The role of borrowing in an investment portfolio, and products that offer it.
An 8% retirement withdrawal rate?
Personal Finance

An 8% retirement withdrawal rate?

A radio host advocates no small plans.