Market commentary as 2020 ends and 2021 begins
Staying focused on the long-haul destination
Piloting an aircraft has been viewed as long periods of boredom, punctuated by moments of sheer terror. In the wake of an extraordinary year for the markets, investors can certainly relate to this experience.
In full view, 2020 turned out to be another positive year for investment performance. A balanced portfolio of 60% global stocks and 40% bonds delivered returns in line with the average annual gain over the last three decades. Of course, this view masks the nosedive in February and March 2020 when stocks plummeted 30% in just 22 days.
Last spring, you may recall that we advised you to keep a level head during volatile periods. Certainly, it was easier said than done. With continuous updates on how many points the Dow Jones Index just gave away, it was challenging to hear that the best response was to stick to your investment plan. It was, however, the right thing to do. By maintaining the course, you are further ahead today than those that strapped on a parachute amidst the turbulence.
Adhering to a process is something that the aviation industry came to appreciate a generation ago. It was borne out of the experience of getting the B17 Flying Fortress off the ground. While the B17 was a technological marvel in its time, the initial test flights ended disastrously. The aircraft was too complex for pilots using rote memorization and gut feelings to maneuver. The solution was an aviation first – the creation of checklists to guide the actions of the flight crew. As a result, there was a drastic improvement in safety on subsequent test flights, with improved efficiency to boot.
Today, from pre-flight diagnostics to challenge-and-response checklists, standard processes are essential guides in the cockpit. They serve as the difference between sound decision making and potentially fatal errors.
This brings us back to your account at Open Access. We do not believe in investing on autopilot when it comes to compounding your wealth. Our team follows an investment process throughout market cycles, continuously adjusting your savings between safety and growth strategies.
Admittedly, this process is not foolproof. Stormy skies will still lead to a bumpier ride than we would prefer. That said, your investment plan worked well throughout a challenging year. It protected your capital better in the volatile times, while delivering growth to keep you on track to reaching your financial goals.
As we scan the open skies for 2021, the indicators point to another positive year for equities. Corporate earnings are set to stage a robust recovery, against the backdrop of an expansionary phase in the global business cycle. Economically sensitive sectors such as manufacturing and real estate are signaling growth, aided by rock-bottom interest rates.
The caveat, however, is that this optimistic forecast represents the current consensus view. A lot of this good news is already priced-in by investors. From bitcoin, to shares of Tesla, to recent frenzies in IPO’s and special-purpose acquisition companies (SPACs), there is a level of “bubbliness” to today’s markets that is slightly troubling.
Your portfolio begins the year with a neutral stance in defensive strategies relative to growth assets as a result. Should our playbook proceed as anticipated, you can expect to see higher exposures to global stocks in the months ahead.
Ultimately, with our investment process as a guide, our team stands ready to navigate once again through bouts of turbulence in 2021.
We wish you much health and happiness in the year ahead.