What a year it has been? Who woulda thunk? Depending upon your start date, we have had, give or take, twelve months since the outset of the Covid-19 in the United States. Looking back at what has transpired is a learning experience if you are willing to consider facts and figures.
Before, I talk money, finances and numbers, let us first mourn the loss of family, loved ones, co-workers and even those we never met who died during the last twelve months. No funerals to say our good byes. No visits to loved ones in hospitals and retirement centers has caused great isolation and separation anxiety. Closed schools have cost our children and families in ways we cannot yet calculate. No handshakes, hugs, shared meals or even the pleasures of an exciting movie, great concert, or sporting event shared with strangers.
Yes, we have all lost a great deal. Yet we have choices. We can focus on the losses or be grateful for all we have. Lessons learned. Relationships restored or strengthened. The promise of a better tomorrow.
The previous twelve months was a reminder of the stock market’s perseverance. Hold onto your hat as you read this, since the moves were dramatic. The S&P 500 peaked at 3,380 on February 19, 2020. By March 23, the index dropped 1,089 points or 32% in a mere twenty-three trading days. (1)
Over the next eight months (Oct 31, 2020), the S&P 500 recovered to 3,294. By year-end 2020, the S&P 500 reached 3,733. By February 19, 2021, the one-year anniversary of the previous peak, the S&P was 3,921. One year after a peak, then a decline of 32%, the S&P 500 index is 16% higher than a year earlier. As I said initially, “who woulda thunk? (1)
The S&P 500 is an index of 500 of the largest U.S. companies and an indicator of overall stock market performance. You cannot invest directly in the index. Past performance is not an indication or guarantee of the future.
Since 1926 there have been 16 “Bear Markets” as defined by a decline of 20% or more. This averages about one every six years. These Bear Markets average 22 months in length and average declines of 39%. From 1926 to the present, the S&P 500 has returned to investors 10-11% per year. (2, 3, 4)
Patient, long-term investors in stocks not only survived but thrived.
Back to the last twelve months. The US is approaching 600,000 deaths due to COVID. Vaccines are available and by summer everyone who wants a vaccine is predicted to be able to get it. We can only hope and pray that everyone gets a shot and helps solve the problem. (5)
Last Spring 22M people lost their jobs. This is bad news. Good news is that 10M of these same people are now working. Bad news is that 12M are still looking for work or a return to their previous income level. Point of comparison, during the Great Recession 2008-09, the U.S. had 9M unemployed people at the peak of unemployment. (6, 7)
In the second quarter of 2020, the U.S. economy / GDP declined by 34% over the previous year; then increased 38% in the third quarter (compared to Q3, 2019 ) and by the end of year was down 3.5% for 2020 when compared to 2019. (8, 9)
Stock market? Economy? COVID? Who is in charge? In my opinion, the virus was / is in charge. If taking the vaccine and sensible behavior becomes the norm, the economy continues to recover, then companies continue to grow and become more profitable. The result may possibly be good returns in the stock market.
Every time the stock market reaches an all-time high, people start asking if this is a “bubble?” The market has gone up so much for such a long time, it is bound to go down a lot and soon? Right?
Well, not exactly. Remember the major market crashes in 1929, 1968, 2000, and 2008. What happened after each of them? As one of my mentors, Nick Murray, says, “Market gains are permanent, losses are temporary.” Yes, the stock market goes up and down. However, when losses happen, they are a passing thing, and then the market goes up past the previous high to a new one. Then a decline but then back up to the new high. Repeat the cycle. Of course, no guarantees.
Allow me to bring up a few economic numbers for discussion. Yes, more numbers.
Personal finances as a nation are better than ever. Personal household savings rates are about 13%. (10) Median household net worth is $121,411 which is up from $97,225 in 2017. This is good that it is up. Frankly, I was a bit shocked at the number. It seems sadly too low. The answer lies in the definition of median. Median means there are an equal number of households above and an equal number below the median. This means many, many households have little or no net worth. The average household net worth is $746,821 now verses $692,100 in 1997. This tells us there are some households with lots of assets like homes, stocks and real estate that pull up the average. (11)
The outlook for U.S. GDP growth for 2021 is in the 6 to 7% growth range -- after earlier predictions of 4 to 5% growth. Global GDP growth is predicted to be at 6%. (12)
Manufacturing in the US is predicted to grow at 6.9% in 2021. One factor inhibiting more growth in manufacturing is the lack of qualified labor. (13)
Your investment portfolio should be designed, built and maintained to manage your long-term financial priorities. Short-term focus, instant gratification, chasing the hottest mutual fund or stock or attempting to time when to get in or out of the market, is tempting fate like going to Vegas and putting all your money on one number and a spin of the roulette wheel. Diversification, time, patience, and perseverance leads to more predictable results and better sleep. Again, I will quote Nick Murray from his March newsletter: “I believe the most successful investors lo these 12 months past were those who had a plan-driven, well-diversified equity portfolio last February 19—and who were still holding that portfolio when the sun came up over the Republic this morning.”
Call or email if you have questions. Your finances are personal. Planning for them should be too.
The following link shows what retirement “might be like” for a retired professional athlete like Payton Manning. It is 4 minutes and funny. Enjoy.
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