Stocks and bonds finished 2020 with unexpectedly strong gains. Did you?
Despite all the reasons why stocks could have done poorly—a bear market and economic downturn triggered by the Covid-19 pandemic, plus a contentious election—stocks ultimately soared.
The S&P 500 was up 18.4% for the year, the Dow gained 9.6%, and the global MSCI All Country World Index gained 16.3%. Tech-focused Nasdaq 100 rose an astonishing 48.6%.
A massive small-cap rally pushed the Russell 2000 Index up 30% in the last three months of the year. As a result, the index finished 2020 up 20.0%, slightly ahead of the S&P 500.
So now what? How do you move forward after a year like 2020? What should you do first?
How should investors start 2021?
In normal circumstances, the start of a new year is a time to do some big-picture planning. It’s a time to get organized, consider rebalancing your allocation, and review your investment plans to see if there are any changes to make. But this year, the usual advice may not apply.
Many of the investors we’ve talked to recently aren’t in the same place as they were a year ago. Some sold out of stocks in 2020, so their first priority is to get more fully invested. Others got distracted from their investments in 2020 and need to get back in the swing of things before they’re ready to make changes to their investment plans.
With this in mind, our investment advisors shared some ideas on how to move forward now, whether you’re celebrating the strong stock market’s 2020 gains or you spent the past year in a state of disbelief and are still getting your footing in 2021.
4 new ways to move forward in 2021
If you missed out on gains in 2020...
You may feel discouraged or frustrated if you sold out of the market last year, but don’t give up now. Use this as an opportunity to figure out what you could do differently to stay invested next time around. Are you doing enough to manage risk? What can you do to keep your emotions under control when markets are falling? Are you letting headlines affect your investment decisions?
Would it help to work with an advisor? Some of our wealth management clients first came to us to help them stay on track in volatile times.
If your investments did especially well in 2020...
It’s worth looking at how much risk you’re taking. Market gains were concentrated in technology for much of the last year, and if you had more exposure to tech stocks or technology sector funds, you likely had particularly strong returns in 2020. But if markets continue to move away from tech in 2021, as we’ve seen the last few months, your investments could really take a hit, so make sure you’re adequately diversified and invested in a way that’s consistent with your risk tolerance. Is it time to rebalance?
If you weren’t sure what to do when markets changed in 2020...
All the changes in 2020 left some investors paralyzed with indecision. It’s hard to know what to do when so much is in flux. But change is a constant in life and in investing, so it’s important to have an investment strategy that can help you adapt to change.
Our longtime investment approach is designed for changing markets. In 2020, it helped us manage risk during the bear market, participate in the powerful recovery, and keep up with changing market trends in the fourth quarter—without having to predict any of these changes in advance.
Responding to changing markets may turn out to be even more important in 2021—some believe we are in the early stages of a major market rotation away from growth stocks—so make sure you’ve got a process or an advisor who can guide you through it.
If you feel exhausted after 2020...
The past year took a lot out of us, and it may take some time to recover from it and get back on track. Some investors who previously enjoyed spending their free time on their investments now find that they’re too busy trying to keep their business afloat, help their children with virtual schooling, and care for their aging parents.
If you’re feeling overwhelmed, look for ways to simplify your investing. You don’t have to do it all yourself. Maybe you invest in a mutual fund that’s managed in a way that adapts to changing markets, or perhaps you hire an advisor for the next year or until things settle down and you feel back to your old self. Set up a time to talk with a FundX advisor here and let’s see if we can help you move forward.
The takeaway here is to try to not let what happened in 2020 hold you back in 2021. Our investing advice? Learn from 2020 and keep going.