Yes, you read it correctly. The stock market may go down in 2021.
I estimate a decline of the stock market at some point during calendar 2021 with a fair bit of certainty. Those of you that know me well know I am not inclined to make market predictions.
As a financial planner in Escondido with clients from San Diego to Pennsylvania to Seattle and Florida, I am a student of history, markets and human behavior. For each and every year for the past thirty-five years, the S&P 500 index has dipped below the level that the market was at starting the year. The link , page 27 : takes you to a chart from Invesco that illustrates the low point of the S&P for each year and then also the level of the S&P by the year end. * S&P 500 is a stock market index that measures the stock performance of 500 large companies.
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Some of these market dips were quite small but others like in 2001, 2008 and 2020 were significant. In every year in this example the S&P was lower at some point in the year and finished above the low point of the year and in four of every five years the ending point in the market year was above the beginning point.
Allow me to say that again in another way with an example using football (in honor of the Superbowl). Let’s say that your favorite team is behind in every game of the year at some point during the game. They have never been ahead in any game from beginning to end. Yet at the end of the season, they have won 80% of their games. Would that be considered a successful football season? Well, that is the historic performance of the S&P 500. The S&P 500 is an index and you cannot invest directly in an index. Past market performance is neither an indication or guarantee of the future. I’m just saying that in the past it has work out that way. No guarantees.
This has nothing to do with which political party is in the White House or controls Congress. Expansion and contraction of the economy is cyclical like the seasons, tides and phases of the moon. Open the chart , page 73: and assign the President to the annual market returns. Research it for yourself. (1) (2) (3)
Success or failure as an investor has much more to do with “time in the market” than it does “timing the market.” According to long-time manager of the Fidelity Contra Fund, Peter Lynch, “More money has been lost trying to avoid a market decline than has ever been lost in any decline.”
Allow me to use the Financial Crisis of 2008 as one example. From mid-2007 the S&P 500 declined from 1481 to 735. Did it go to zero? Did everyone loose half their money? No and No. Yes, some people lost money because they were poorly educated or some panicked just like their financial advisor may have panicked and they sold their investments in the stock market during a time of emotional discomfort. People that sold their positions at a price lower than the purchase price lost money. Investors with patience prevailed.
I will admit that 2008 was a scary time to watch the value of your account drop by half. Yet, markets, the economy and humans recover from times of great turmoil. The courageous have been rewarded. The value of the S&P 500 today at 3,800+ is well over double the value before the Financial Crisis and more than five times the value at the bottom of the crisis.
Last year, in 2020, was the example of all examples on steroids. The year began with the markets at record highs and continued up for a few more weeks. Then a bug got to us. Yes, a bug called COVID-19. The markets went into “Panic Mode” and dropped over 30% in a record 23 trading days in March. Then beginning on March 24, the rally of 2020 began (some would call it a continuation of the Bull Market from 2009) and the S&P 500 rallied from 2,237on March 23 to 3,756 (up 67%) by the end of the year to 3,886 on February 5, 2021. (4)
The stock market is rather like the weather when I was growing up in South Dakota. If you don’t like what it is doing at the moment hang around and it will probably change. Some days are hot, while others cold; sometimes is rains or snows but then the sun shines again and the crops grow. There are seasons to plant and others to harvest. You cannot “sit out” the season because you think the prices will be bad or the harvest poor. You plant every season and stay invested at all time. Yes, sometimes more of one crop / investment than another but always planting / investing. Historically, the stock market has given you a profit four of every five years. (1) (2) (3) (4) –no guarantees.
In my opinion, the stock market may not be for speculation or short-term gambling, rather for long-term patient investors. It is for people that have a serious desire for their money to maintain its purchasing power and are interested in funding their long-term goals and leaving a legacy for family and charity.
Call me with questions, concerns, frustrations about your investments.
The views and opinions expressed are those of the author, and the information should not be construed as individual investment advice, or as the opinion(s) of Voya Financial Advisors. CN1516269_0223