Financial security

Market trends that may affect financial security

For investors, 2020 has been a roller coaster of epic proportions.

Between a pandemic, a stock market crash, a rebound to record highs, and massive government intervention, many investors felt anxious as their portfolios were on the line. With the changes 2020 brings, it’s more important than ever to review your individual financial plan as you consider this year and beyond.

Keep a close eye on these six market trends, they could transform your financial plan and your financial future.

Following the stimulus, the financial system is currently awash with liquidity. Interest rates are expected to hover around 0% for the next 3-5 years. If true, it means that 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 generally do well during periods of low interest rates as investors looking for yield accumulate in the assets.

Overall, businesses are making more money as the economy reopens; even hard-hit industries such as hospitality and healthcare are doing well. Higher earnings can create a new sense of optimism for investors. This positivity is supporting the asset prices we are seeing right now.

Let the recovery work for you. The markets seem to be looking to the future. Many organizations will likely experience a banner year in 2021, which bodes well for equity investors. Ask your advisor if 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 came back as markets were straightening up. Investors have billions of cash in reserve – and with no return on cash, investors are likely to reinvest, driving up market values.

It’s not too late to invest. Make sure your portfolios are strong and aligned with your personal goals. Between panicked investors and the Fed’s injection of cash, there’s a lot of money that needs to find a home, and that’s creating optimism for the market.

To maintain economic stability during COVID-19, the Fed and other central banks have worked together on monetary policy, pumping trillions into the global economy. Both Democrats and Republicans have a pro-stimulus record. The combination of these two forces provides a stable backdrop for you to stick to with your long-term financial and investment plan.

So focus on the long term. Try not to worry about the politics of it all. It is 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 practical approach to investing with a long-term perspective can help you preserve and grow your wealth.

Historically, individual investors took an asset class approach — bonds for yield, stocks for growth — but today’s market is more dynamic. Speculating on trendy stocks has been all the rage lately, though few grasp the risk management and tax (capital gains) implications of their trading strategies.

Invest for the future and avoid trading the noise. Fads come and go, but solid investment portfolios tailored to your goals stand the test of time. The journey to your financial goals is an individual journey that is based on an in-depth knowledge of the interplay between investments and taxes and is personalized to you.

Between massive crash and meteoric rise, 2020 has been the year of volatility. More legislative changes are inevitable as the Biden administration takes hold, both from an estate and tax planning perspective. While much remains up in the air in 2021, policy changes provide wealth planning opportunities for thoughtful, forward-looking investors.

With financial markets at record highs and tax reform on the horizon, risk management and personal courage are key differentiators for investors in 2021 and beyond. Be forward-looking, ask if your personal plan still supports your goals, and rely on your financial guides to help you stay on track.

For more information on market trends in the North East, contact Clayton Bland at clayton.bland@CLAconnect.com or Christopher Dhanraj at christopher.dhanraj@CLAconnect.com.