For the nation, 2020 has been one of the most difficult years in memory. We are grappling with COVID and its fallout, economic upheaval, racial tensions, wildfires, hurricanes, a presidential election, and a polarized electorate.
Despite this year’s difficulties, a strong economic recovery, record low interest rates, and an aggressive stance by the Federal Reserve have helped the major market indexes rebound from the steep sell-off in March.
But where do we go from here? What’s in store over the next four years? If we view the future through the lens of public or tax policy, visibility is extremely limited.
While Joe Biden seems to be the clear winner of the election, President Trump has yet to concede. Meanwhile, it’s unclear which party will control the Senate but it’s likely to be determined by runoff elections in Georgia early next year.
If we narrow our scope and review the landscape through the lens of the investor and the market, I believe we can look to history for guidance and at least obtain some degree of clarity.
First, let me say this. Any stock market forecast that you may hear from analysts is simply an educated guess. They may get lucky for the right or the wrong reason. Or analysts might miss the mark by a wide margin. As we already know, even the smartest folks in the room don’t know the future.
Besides, we already know that consistently timing the market is nearly impossible.
However, over a longer period, we recognize that stocks have historically had an upward bias.
“Since 1932, the S&P 500 Index has gained an aggregate of 710% under Democratic presidents and 375% under Republican presidents. But staying invested the entire time would have earned 47,000%,” according to the Schwab Center for Financial Research.
In other words, if you shunned stocks when either a Republican or Democrat was president, you missed out on the lion’s share of the market’s gain.
If we take the last 12 years into consideration, a similar pattern emerges. Those who pulled out of stocks after the 2008 election because they were discouraged by the results lost out on a significant stock market rally over the ensuing eight-year period.
Anyone discouraged by the 2016 results also failed to participate in a significant stock market rally.
Elections and other current events often create short-term uncertainty. Yet, emotional decisions made outside the boundaries of a well-crafted financial plan have rarely been profitable over a longer period.
Longer term, the economic environment, Federal Reserve policy and interest rates, corporate profits, and inflation trends have historically had the biggest impact on the broader market.
The country will remain divided after the final tally is known. But let’s not forget that the U.S. remains the world’s largest economy; it has the deepest and most transparent capital markets, and innovation isn’t likely to end.
We will face challenges in the days and years ahead. We have always faced challenges. But we are resilient, and I continue to believe that history is on the side of the United States of America.
6 financial planning steps you can implement today
The end of the year is fast approaching. As the calendar days march toward 2021, let’s keep in mind that there are several ideas we should review as you work to get your year-end financial house in order.
Before we get started, the tips below are simply guidelines. Please discuss your particular situation with us first and check with your tax advisor, as various nuances and exceptions can crop up.
Let me remind you that these year-end financial planning steps are guidelines. One size does not fit all. I encourage you to contact us for advice that is tailored to fit your specific needs and goals. We would be happy to entertain any questions that you may have. We are simply a phone call or email away.
I trust you’ve found this review to be helpful and educational.
As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.