What to make of 2021? Depends upon your focus and outlook. Some will focus on the continuing COVID pandemic, numbers of people that remain out of work, supply-chain issues and the resulting wait times for many components and products, continuing political deadlocks and tribal issues, and rising costs (inflation). Others will direct their attention to the remarkable speed of finding a COVID vaccine and all the lives it has saved, the amazing economic recovery, the number of new jobs created since the outset of COVID, and the rising profits and stock prices of many public companies.
I am a financial advisor and also a client. I am both a participant, counselor, teacher and student of all that affects not only your finances but mine as well.
This year is perhaps a lesson in perspective and focus. The news items that seem to be drawing the most attention in the past few weeks include inflation, the FED withdrawing its economic support, threats of rising interest rates, the new Omicron variant strain (lest we forget Delta) with hospitals filled to capacity and the lack of real progress on climate policies.
Investments should be goal-focused and plan-driven. Therefore, very little of any of these current events affects the investments that you and I hold today. Our first goal is having enough cash-flow (or cash) to cover expenses for the next two years.
When planning our investments, some things are known while others are unknowable.
Known: 1) Cash, bank CDs and money markets offer security of principal. Therefore, an excellent place to store the cash you will need for the next two years. 2) After bank deposits earn 3% (less today), and taxes are paid, the principal loses value to inflation over time. The longer you hold cash and the larger the cash deposits, the more value is lost. A slow death by a thousand cuts.
Known: 1) The companies that make up the global stock market provide long-term certainty of returns greater than inflation. 2) In shorter time frames, returns of company shares are unpredictable. 3) The dividends of the company shares that make up the S&P 500 have increased from $19.51 in 1981 to $59.75 in 2021.(1) This is an increase of 3.0% per year over 40 years. 4) Company prices recover from recession, global pandemics, war, political instability, and Fed action or lack of action. -- No guarantees are implied or expressed. This last one is my opinion and is supported by historic evidence. (2)
Un-knowable: 1) What is the next global crisis or when will that crisis occur? 2) How long will the current Bull market continue. 3) When will the next recession start and how long will the next recession last? 4) When or if COVID-19 and the mutations of the virus will only be an entry in medical journals. 5) How any of these and many other events will impact you mentally, emotionally.
Could be known or unknowable: What are you going to do in the future when faced with apparent uncertainty? How confident are you in your financial plan? Will you be tempted to change things up with your investments? Hopefully, if your financial plan was drafted incorporating cyclical volatility, periodic steep drops in stock prices as well as uncertain news events, you will, after consulting with your advisor, maintain the discipline to follow your plan.
All of us want to be aware of and acknowledge the effects that both the positive and negative events have on us. Yes, sometimes they do affect our state of mind. At the same time, remember, that reacting to current events may be detrimental to our financial health. If your priorities change and therefore your financial plan changes, then yes, you may want or need to change some of your investments. But if your priorities haven’t changed, then the investments probably shouldn’t change.
Wollman Wealth Designs, Inc is a financial planning firm located in Escondido, CA partnering with families in San Diego and around the country to provide disciplined goal-focused and plan-driven investment advice. Call or email us with questions.
Securities and advisory services are offered through Cetera Advisor Networks LLC (doing insurance business in CA as CFGAN Insurance Agency LLC), member FINRA/SIPC, a broker-dealer and registered investment adviser. Cetera is under separate ownership from any other name entity. CA Insurance License #0604093
"The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.