INDUSTRY INSIGHT
YOUR FINANCES
SPONSORED CONTENT
Those
Crazy Financial Markets
!
As we all know , the stock market took a precipitous drop in February and March of 2020 in response to a strange Coronavirus invasion of our country causing a change in the way we Americans live and work .
Although the downturn did not meet the technical definition of a recession , market trackers called it a recession anyway , due to the sudden and severe nature of the drop .
That said , it would have been hard to imagine a stellar year in the stock market after a major selloff in the first quarter .
Surprisingly , that is exactly what happened , as the S & P 500 , for example , finished the year up 16 %. NASDAQ had a recordbreaking year – up 43.6 %. And the Dow ended at around 30,606 – establishing a new market high .
Leading the fast-moving rally were the so-called FAANG stocks ( Facebook , Amazon , Apple , Netflix , and Alphabet ( formerly Google )) not to mention Microsoft and Tesla , just to name a few of the more recognizable names . Then , there was Zoom ’ s mercurial rise — up 425 % in 2020 as many of us began to work remotely and communicate virtually rather than face to face .
So , what can we learn from all this ?
First , there appears to be a disconnect between the markets and the economy . On March 23 , stocks bottomed out and began to recover while restaurants , health clubs , and many other businesses were told to close their doors by State and local government officials . Millions of Americans applied for unemployment benefits as a sad consequence . At one point , the unemployment rate was as high as 14.7 % in April 2020 and disproportionately affected many lower paid workers who were the most vulnerable .
So , why did the market do so well , while the country was doing so poorly ? Fact is , the stock market often begins to recover ahead of the economy . Stocks often price in what ’ s going to happen in the future , not what ’ s happening today . Having followed the stock market for many years , I find it to be the best prognosticator of all ; whereas , the media simply reacts day to day .
Secondly , timing the market simply does not work . Those who sold on bad news around March 23 , 2020 probably missed out on the upside in the market .
The same phenomenon occurred on March 9 , 2009 . The prospects for a market recovery from the housing market crash seemed dismal that day as the market began to rally . As we now know , the rally extended for more than 10 years and the market rose over 300 %.
According to a Fidelity Investments , Inc . analysis , the returns of a hypothetical investor putting $ 10,000 into the S & P index fund at the start of 1980 and missing the markets 5 best days through the end of August 2020 would be 38 % lower than those of someone who stayed invested during the entire period .
And thirdly , forecasting doesn ’ t work . There are many examples of failure in this department . For a recent example , the Chief Investment Officer at Oppenheimer Investments forecasted a major downturn of at least 10 % in the market if the Democrats won in Georgia and a majority in the Senate . Guess what ? They did win , and the Dow went up over 400 points .
Since no one can consistently time the market and no one has a crystal ball to see into the future , how should one invest during these uncertain times ?
The answer : develop an investment strategy based on your financial goals and aspirations . The strategy should employ a well-diversified portfolio in consideration of your risk tolerance and ability to sleep at night . It ’ s hard , if not impossible , to beat the market over the long term . Therefore , an indexed approach might be the best alternative .
If you think you may need some help and have $ 500,000 or more to invest , call us . As investment fiduciaries , we will place your interests above our own . Our perspective as experienced professionals can provide the objectivity you may need to develop a sound financial plan .
Wall Street Journal , www . wsj . com , “ Lessons Learned From A Crazy Year in Financial Markets ”, Monday , January 4 , 2021 .
Market Watch , published December 31 , 2020 .
This Industry Insight was written by Garrett S . Hoge .
Garrett S . Hoge , CFP ®, ChFC ®, MS of H Financial Management , is a private wealth manager based in Southpointe serving the ever-changing financial needs of his clients . Please contact Garrett at H Financial Management , 400 Southpointe Blvd ., # 420 , Canonsburg , PA 15317 , Phone : 724-745-9406 , Email : garrett @ hfinancial . net , or via the Web : www . hfinancialmanagement . com .
Securities offered through Triad Advisors , LLC , Member FINRA / SIPC • Advisory Services offered through H Financial Management .
H Financial Management is not affiliated with Triad Advisors , LLC .
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