It’s hard to imagine a more dramatic roller-coaster ride for investors than what we experienced in 2020. The Covid-19 whipsaw felt like the Great Recession and the Dot Com Bubble wrapped together and compressed into less than a year. This experience should provide a lesson heading into 2021: Predicting the future is not easy!
The S&P 500 dropped over 33% in March, we just went through a hotly contested presidential election and are still in the midst of a global pandemic. Yet, the S&P 500 has been hitting record highs.
If anything, 2020 should teach investors that well-established principles, like investing for the long-term with a globally diversified portfolio and only checking your investment balance occasionally are important disciplines. If you panicked when the market dipped in March and sold your investments, you’d have missed out on a full recovery—including 60% growth since March’s pullback.
Still, it’s impossible to ignore the trends that may impact investors in 2021. Here are some that may affect you and your investments as we head into the new year.
The Biden Impact
January will be dominated by news of the incoming Biden administration. Plenty has been written about President-elect Joe Biden’s plan to raise taxes on the wealthy and its potential impact on stocks. But the market reacted favorably to Biden’s apparent victory on election night and continued to rally as the election results have been clarified.
While Wall Street initially seemed to hope for a blue wave, the market’s recent performance seems to show it also likes gridlock, meaning the markets will probably react favorably regardless of the outcomes of Georgia’s run-off U.S. Senate races.
A Return to Normalcy
The approval and gradual distribution of Covid-19 vaccines will be a major obsession in throughout the first half of 2021. Will the vaccines work as advertised? How rapidly will they be distributed around the country and the world?
There will be inevitable hiccups. But as better weather returns to the U.S., normalcy could begin to gradually return. At the same time, markets will be watching for Congress to pass additional stimulus to provide a lifeline for small businesses and consumers until vaccines really start to slow the spread of the virus.
How quickly the pandemic fades will have significant macro-economic impacts, and these will hit many investment sectors. Some will be more obvious than others.
Vaccine Boosting Bio-Tech Sector
If the pharmaceutical industry manages to get Covid-19 under control during 2021, it will be a triumph for science. Public companies involved in the effort will be handsomely rewarded.
Some potential winners will be obvious, like vaccine makers Pfizer (PFE) or Moderna (MRNA)—but many others probably not. Utilizing a vaccine focused and globally diversified choice such as the ‘Demand Vaccine’ portfolio should improve the likelihood of owning more of the bio-tech successes than simply trying to pick a handful of individual stocks.
Be Ready for the Unexpected
New investing phases are normal. In the stock market, they are called “rotations.” Money often chases gains in certain sectors until a rally there becomes exhausted and then it rotates to others. It’s likely that investors will rotate into different sectors as we gradually climb out of this pandemic.
Predictions are hard. That’s why it’s important to avoid the temptation to over-focus on the short term and ever present media headlines and instead, construct a sound financial plan with an advisor that addresses your longer term needs and goals. The new year also offers investors a chance to take stock of how they handled the unexpected events of the past 12 months and consider making changes.
In a world where uncertainty is more common, it’s important to be prepared for market highs and lows. While we can hope nothing as dramatic as a pandemic rears up again, investors need to become more comfortable with increased volatility in the marketplace for the foreseeable future.
One of the best ways for investors to handle volatility and the uncertainties of the future is by utilizing a diversified portfolio tailored to their goals, values and risk tolerance. The team at Demand Wealth is passionate about helping clients achieve their financial goals. We individually assess your unique financial circumstances and develop strategies that are customized to your needs.
Are you interested in aligning your lifestyle with a diversified investment strategy to navigate the future? If so, we are here to help! Open an account here or schedule a Zoom conference with one of our advisors today.
This report is a publication of Demand Wealth. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.