A Look Back, A Look Ahead and Some Shared Highlights

Personal Finance

December 28, 2020
Personal Finance

The past year has been one for the history books. The holiday season marks a good time to reflect on the past and think about the future. I am grateful for those who have allowed me to work with them in 2020. I hope you have made it through the year with your health and sanity. I hope you can say the same for your loved ones as well. May 2021 hold nothing but better times for everyone.

I hope everyone enjoyed has enjoyed this unusual holiday season. I wish you a Happy New Year! May the year ahead be full of joy, happiness, and success for each of you.

Please click here for a video overview of this blog.

I am rarely one to exaggerate, so I feel comfortable saying that this year has been unlike any most investors have seen before. After all, this year included a global pandemic a brief bear market, and a return to all-time highs a few short months later. All this happened in the middle of a contentious presidential election.

Using this article from the Wall Street Journal as a guide, let’s take a look at the year’s key market dates:

· February 19: The Nasdaq and S&P 500 rose to new records. This was the calm before the storm, as the market started tumbling the next day.

· February 27: Amid coronavirus-related fears, U.S. markets fell to correction territory. All major U.S. stock indexes fell at least 12% from their recent record highs. The S&P 500 took just six trading days to plunge from an all-time high to correction territory – down at least 10%.

· March 11: The longest bull market for U.S. stocks ended. The Dow Jones Industrial Average (DJIA) closed 20.3% below its recent peak.

· March 23: The S&P 500 closed at its lowest level of the year – 34% below the record high set just more than a month earlier.

· March 24: Indications that lawmakers were closing in on a big stimulus package helped stocks surge higher. The S&P 500 jumped 9.4% for the day.

· March 31: Despite their late-March rebound, U.S stocks delivered their worst quarterly returns since the 2008-2009 financial crisis.

· June 30: Following the first-quarter beating, U.S. stocks delivered their best quarterly gains in percentage terms in more than 20 years. The S&P 500 advanced 20%, the DJIA 18%, and the Nasdaq 31%.

· August 18: The S&P 500 closed at a record high. The losses in the indexes from the February-March pandemic-related plunge were fully recaptured.

· November 24:  The DJIA closed above 30,000 for the first time – up about 60% from its March lows. The S&P 500 also set a record. By my count, through Christmas Eve, the S&P 500 has closed at a new high 18 times in all since February 19th.

When 2020 started I doubt many of us had a global pandemic on our radar screen. At that time, the biggest worries on many investor’s minds related to potentially high equity valuations and low bond yields. Some may have been concerned about election-related volatility as well. But a global pandemic? Not likely. Yet, the pandemic has dominated this year’s news.

What messages can investors take from this year’s markets? First, thinking about specific risk factors that can hurt your portfolio is probably a useless exercise. Instead, we should remember that markets will periodically turn sharply lower. Investors must remember the importance of holding on through periods of market weakness.

Holding tight is, unfortunately, easier said than done. You must have the psychological wherewithal to hang on through these periods. Fortunately, you can take steps to protect your portfolio before a market shock happens. That can help ease the pain – and the related fear – associated with a downturn.

The fact that this year’s market downturn was the shortest in history only reinforces the importance of holding on. I still recall a call I got from a reader in April or May. He sold many of his high yield bonds during the downturn, recognizing large losses. He was “paralyzed” by market events. He had locked in losses by selling. He didn’t know how to overcome his fear and get back in the market.

Investors need to be prepared to sit tight through market downturns. If you can, you want to avoid turning paper losses into actual losses. If retirees  need to withdraw funds from their accounts to cover living expenses, I prefer a bucket strategy. I set aside an amount of cash that will cover 12-24 months of living expenses.

Such cash can be used to fund needs during a market downturn. Assets can be sold when the recovery takes hold to replenish the cash. This helps accomplish an important goal: Avoid selling low.

It is also important to remember that the market is not the economy. If you wait for signs the economy is recovering before getting back in the market, you will likely be too late. The economy’s recovery so far has been far different than anyone expected. I recall the speculation about whether the recovery would be shaped like a “V,” a “U,” or even an “L” with a slight upward slope.

The government’s overwhelming stimulus (three times greater than during the 2008-2009 financial crisis) has helped create the sharpest rebound in U.S. history. By the year’s second half, the topline economy was almost back to normal. However, the disparity between the winners and losers is quite wide. The result: A “K- “shaped recovery. The technology, capital markets, and housing sectors have boomed. The growth in e-commerce has surged. On the other hand, sectors such as energy, travel and leisure, and transportation, have sharply lagged. Many restaurants have shut and are unlikely to re-open.

WHAT COMES NEXT?

As we get ready to start another year, we can find many 2021 market forecasts when perusing the financial news. In general, it is best to be skeptical about such forecasts. Predicting what might happen next week is hard enough. Forget about forecasting what might happen over the next year. About the only thing one can comfortably say about the U.S. markets is that we expect them to open at 9:30 AM and close at 4:00 PM about 250 times a year (365 days less holidays and weekends).

What comes next? Expect the unexpected. If you took virtually any year in history and compared the end-result to expectations, you would find large differences. Trying to forecast the market’s performance is a futile endeavor. We are comfortable maintaining our view that over the long term the markets should move higher. Over the short term, however, we cannot say with a high degree of confidence what might happen next. But, if pushed to provide a view, based on the market’s historical track record, our 2021 forecast is up, not down, for the U.S. stock market. Why? Historically, markets rise more often than they fall. If we forecast market gains every year, we would be right more often than not. (For example, this chart shows the S&P 500 has closed higher about two-thirds of the time going back to 1928.)

The year 2020 will go down in the history books. Future generations will read about it. We will share stories of what living through a global pandemic was like. I believe it best to look forward to the year ahead rather than lament about the past year. Let’s hope that in 2021 we find a year less dominated by disease and death, by unemployment, and by fear and hatred. A year allowing us to spend more time outside than inside, a year that ends with smiles not hidden by masks. A year where we can travel more freely, return to ballparks, concert halls, and theaters.

May you continue to have the patience and fortitude to focus on the future. This has been a hard year. Better days lie ahead.

In closing, I would like to offer one last look back to 2020. I have reviewed the data from the blogs published by Apprise Wealth Management. I want to share 12 items from Apprise’s 2020 content library. The first six are the most read original content blogs. The next six are the six most viewed items from Apprise’s 5 Favorite Reads.

Apprise Wealth Management Blogs

· March 16, 2020: “This Too Shall Pass.”

· March 23, 2020: “Recent Market Performance: The Bad and the Good.”

· March 10, 2020: “Handling Volatile Markets.”

· March 2, 2020: “Thoughts on Current Market Volatility.”

· October 25, 2020: “Social Security: Some Questions and Answers About Benefits.”

· December 17, 2020: “How Do You Decide Where to Live When You Retire.”

Highlights from Apprise's Five Favorite Reads

· July 5, 2020: “6 Bad Moves That’ll Haunt Your Client’s Retirement.”

· February 9, 2020: Here’s How Much It May Cost to Retire in Each State in America.”

· July 19, 2020: “7 Items Your Estate Plan May Have Left Out.”

· October 4, 2020: “10 Things You’ll Spend More on in Retirement.”

· April 26, 2020: “Is the Virus on My Clothes? My Shoes? My Hair? My Newspaper?

· October 18, 2020: “These Are the 5 Best Places to Retire in America.”

As an individual, I am often prone to deep reflection. This year, I took a deep look at Apprise’s business. It helped me to better understand how the twists and turns my career has taken led me to start Apprise. It also helped me to better understand the type of clients I work with and how I can help. If you have not yet read “Confessions of a Financial Advisor,” please do. Thank you all for your time and attention this year. May there be better days ahead for all of us.

Happy New Year to all! See you in 2021.

Our practice continues to benefit from referrals from our clients and friends. Thank you for your trust and confidence.

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