2020 Investment Review
I think most of us are happy to see 2020 in the rearview mirror. One might say we were largely unprepared for what has taken place. A global pandemic. Social unrest. And some political chaos.
In contrast, as investors, we were prepared and handled 2020 like seasoned professionals.
After a bullish start, a disastrous “waterfall” market in March led to massive recovery in the investment markets. Clearly, the lessons of the technology bubble (2000-2002) and the financial crisis (2007-2009) were not wasted as (when possible) we “leaned into” the decline, and you benefited from the recovery.
Subsequently, 2020 leaves most of you in better financial shape than where you started.
Where do we stand?
Hope, and confidence, is moving us in a positive direction. The same hope that powered the markets higher as it looked past the economic ramifications of the global pandemic is now powering us forward as the vaccine is distributed throughout the developed world and some of the developing world.
Stock and bond markets are generally a proxy of things to come => in the past, markets have recovered in advance of the economy when investor’s fears began to subside.
2020 was, in this aspect, no different.
Global stock markets are responding to stimulus and confidence that we will soon put this pandemic not only behind us, but that we will power ahead confidently. This comes as no real surprise as history tells us that periods of economic volatility (and adversity) have been followed by periods of significant prosperity. (Ideally our future success will more than trickle down to those less fortunate.)
Bond markets have reacted to government action in an effort to keep money inexpensive…. With low interest rates for the foreseeable future. And with cash in the bank earning nearly nothing, money is looking for places to go with the “TINA” principle in full effect.
TINA = There Is No Alternative.
This, in part, has caused asset prices to rise: stocks, real estate, used cars, classic cars, bonds, you name it…
None of this is to say anything bad has to happen in the near future because overriding all other factors is a bullish near term view of the global economy and an incredible human desire for a return to “normal”. Pent up demand will power us forward.
You will be “free to move about the country”…soon. Thanks Southwest.
A look at 2020 Global Investment Markets:
Collectively, the global stock market outperformed the global bond markets. While this is typical in most years, bonds most often perform well when investors are nervous. Unprecedented action by governments to keep rates low and “TINA” has helped bond markets perform well even as investors have become bullish.
US stocks outperformed International Stocks. More stimulus. More investor optimism. More capitalism.
US stock performance was not evenly distributed with the “digital/work from anywhere stocks” doing quite well, and the “stay at home/can’t leave home” stocks trailing significantly. In late 2020, the “soon I will leave home” stocks made a significant run in anticipation of a US economic “reopening”.
Why are we hopeful?
Clearly 2020 wasn’t a typical recession. Temporarily, demand for certain services/businesses went to zero. As we move past the pandemic and demand returns, supply will ramp up to meet it with open arms both in the US and abroad.
Looking for some additional insights into 2021? You can read what American Funds thinks here in their 2021 Outlook Here
What do we do now?
First, we will always fine tune our approach based on the history of and current pricing of the global markets. At times, these adjustments take place within the investments we own, requiring no external changes on our part.
And, as always, we will ensure that you have not become overly concentrated in last year’s big winners nor ignore the areas of the market with higher expected returns in the future.
Second, we will adjust and reallocate your portfolio based on the evolution of your plans as we review and measure progress toward your goals. As in every year, we will re-benchmark your plan and goals, reconsidering what’s necessary for your plans to be successful. 2020’s “success” may allow some of you to be more conservative in your long term investment approach.
If you are a client, I will be contacting you shortly to schedule your 1st Quarter Planning & Performance Review.
Not a client and would like to explore working toward a successful retirement? You can schedule an introductory call here.
Please Note: Speak to your tax, legal or financial advisor for specific advice about your particular plans and situation.
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John R. Bubello is an investment advisor representative of and offers investment advisory services through Compass Retirement, LLC, a registered investment adviser offering advisory services in the State of Connecticut, State of Florida and other jurisdictions where registered or exempted.