When it comes to investing in the stock market, we recommend a strategic approach. First, you want to consider your big picture — which includes how you ultimately want to use accumulated assets (e.g., college tuition, retirement) and when you’ll need them. You also want to make sure you don’t take on too much risk, so that requires a strategic asset allocation across a diverse group of investments. Finally, one of the basic tenets of stock investing is to buy low and sell high. We can help you with all of these tactics.
We expect 2021 to be an interesting year. Assuming wide distribution of COVID-19 vaccines and successful containment of the virus, the economy should get back on track. But as we saw in 2020, even the coronavirus didn’t have a long-term impact on the stock market.
With that said, Merrill Lynch sees a broad market uptrend in 2021. In equities, the money manager sees upside in cyclical sectors (e.g., financials, materials, industrials), U.S. small-cap value stocks and emerging markets — which are supported by the continued downtrend in the U.S. dollar.2 Bear in mind that while some of these investments pose higher risk, they also follow the tenet of buying low and selling high. The key is to find stocks that are currently selling at low prices but have the potential to rise given (1) the current economic environment, (2) market trends and (3) individual company fundamentals.
When rebalancing, if prices seem too high to reinvest, don’t be hesitant to hold cash for a short time.3 Investment legend Warren Buffett maintained a highly liquid allocation over the past year, but he did so in preparation to pounce on good buying opportunities when they surfaced.4
Depending on circumstances, some people’s household finances have been transformed, leaving some with less income and others with more savings. We relied on and appreciated technology to keep us fed, clothed and connected with loved ones and colleagues. During this intervening time of recovery, we should not forget the lessons learned. Feel free to contact us if you are looking for ways to help protect your finances in the wake of future crises — whether global, national or household.
On the other hand, there are times when buying low may not be advisable. For example, airline stocks continue to struggle despite congressional relief. Industry experts predict that revenues are unlikely to return to pre-pandemic levels for several years.5
Note that stocks tend to rise on positive news, especially if that news shows some promise of economic growth. A good example of this is when, on Jan. 19, Treasury Secretary nominee Janet Yellen advised Congress to “act big” with regard to increased coronavirus stimulus relief. Following her remarks, the Dow Jones Industrial Average rebounded from a recent losing streak and both the S&P 500 and the Nasdaq made significant gains.6