2021 A Year to be Bold or Play it Safe?
Despite the economic and personal havoc caused by the Covid-19 pandemic and the end of an 11-year long bull market, the strong economic end to 2020 has made many market forecasters optimistic. The overly ambitious forecast has made some investors suspicious, so is 2021 the year to take a risk and make potentially make a lot of money or play it safe?
Reasons to be Optimistic
- A Goldilocks government favoring the Democrats. Historically, a Democratically controlled House and Senate with stocks readily retaining their value. The S&P 500 has also brought gains by an average of 9.1% the majority of the times this scenario has previously occurred. Another key factor to consider is that the Democrats only control the Senate by a narrow margin. This narrow margin should encourage a streamlined passage of new stimulus checks without the larger threat of an increase in taxes.
- Interest rates have reached a record low. One major factor to consider when planning your investments for the oncoming year is to take advantage of these historically low rates. With interest rates not expected to rise for the next couple of years, corporations are taking full advantage of borrowing and investing in their expansion.
- A strong end to the year 2020. Although the Covid-19 pandemic caused a massive stock market crash the year concluded with the S&P going up by 14% in November and December the highest gain since the conclusion of World War 2. With such a massive spike after a heavy loss, it may not be crazy to think the growth will continue in the coming year.
Reasons to be Sceptical
- Forecasters may be overly optimistic without fully calculating the risks. With the recent unveiling of the vaccine and the market rise at the conclusion of the last year, forecasters are pressuring investors now more than ever to pump their assets into a growing market. However, these optimistic assumptions rely on the assertions that the vaccine will quickly and effectively cure the public, earnings will soar in the wake of the economy, and the Federal Reserve will support the stock and bond market. With all these factors remaining uncertain you should remain wary of taking on the risks.
- The market could be a bubble on the verge of bursting. If the pandemic proved anything financially, it shows how much the world can really change on a dime. The stock market crash of 35% in February of last year spelled the end of an 11-year long bull market. Just because the last decade has proved fruitful for investments doesn’t necessarily mean the 2020s will yield the same type of bounty.
The Bottom Line
- Investing always assumes some kind of risk so consider your age before jumping into such a potentially risky market. Younger investors could survive should their assets take a hit but older investors, especially those about to enter into retirement should reconsider as another sharp turn in the market could bring a financial loss you could never recover from.
- Be careful with cash and bonds. As the value of the American dollar continues to drop and the potential sharp rise of interest rates in the coming decade consider moving your assets down a safer avenue.
- Diversify. Putting all your eggs in one basket and assuming that the market will turn a certain way based on a certain set of predictions could spell disaster for your portfolio. Placing your assets in key locations expected to generate growth will ensure that at least some of your investments will stay safe.
Time will tell whether or not 2021 spells a turning point for better or for worse. Whether we are on the verge of another boar market after an unfortunate setback or whether we must brace for an oncoming bear market as bubbles begin to burst. One thing is for certain, that now more than ever it is vital to remain vigilant and anticipate change in whatever form it may come.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2021 Advisor Websites.