For investors, 2020 was a rollercoaster of epic proportions.
Between a pandemic, a market crash, a rebound to record highs and massive government intervention, many investors felt angst as their portfolios hung in the balance. With the changes brought by 2020, it's more important now than ever before to revisit your individual financial plan as you take a look at this year and beyond.
Keep a close eye on these six market trends — they could transform your financial plan, and your financial future.
As a result of stimulus, the financial system is currently flush with cash. Interest rates are expected to hover near 0% for the next 3 – 5 years. If this holds, it means fixed-income investments such as bonds generate a negative real return when adjusted for inflation. So, what does this mean for you? Stay invested. Stocks and real estate investments typically perform well in periods with low interest rates, as investors seeking yield pile into assets.
Across the board, companies are making more money as the economy reopens; even hard-hit industries such as hospitality and health care are doing well. Higher earnings can create a new sense of optimism for investors. This positivity supports the asset prices we are seeing now.
Let the recovery work for you. Markets seem to be forward looking. Many organizations are likely to have a banner year in 2021, which bodes well for equity investors. Talk to your adviser about whether adding equity exposure to your portfolio is right for you.
When the stock market crashed in March 2020 as COVID took center stage, more than $1 trillion left the stock market — yet, only a small portion of it has returned as the markets recovered. Investors have billions in cash sitting on the sidelines — and with no yield on cash, investors are likely to reinvest, boosting market values.
It's not too late to invest. Make sure your portfolios are robust and aligned with your personal goals. Between investors who panicked and the Fed's cash infusion, there's a lot of money that needs to find a home, and that creates optimism for the market.
So, focus on the long term. Try not to worry about the politics of it all. It's well known that the average investor — driven by emotion — buys high and sells low. Yet, those who stay invested see, on average, a 6 – 7% return. A hands-on approach to investment with a long-term outlook can help you preserve and grow wealth.
Invest for the future and avoid trading the noise. Fads come and go, but robust investment portfolios tailored to your goals are proven to stand the test of time. The path to your financial goals is an individual one that hinges on deep knowledge of the interplay between investments and tax and is personalized to you.
With financial markets at record highs and tax reform on the horizon, risk management and personal grit are key differentiators for investors in 2021 and beyond. Be forward-looking, ask if your personal plan still supports your goals, and lean on your financial guides to help you stay on track.
Clayton Bland and