Good Riddance to 2020
Jay L. Gershman, Retirement Visions LLC, West Hartford
As the year winds down, I can’t wait for 2021! A year that started with so much promise and expectations has been everything but. This year I was turning 60 and planning a golf trip to Ireland, celebrating my 30th year in business, and planning exciting in-person client events. Instead, this year will be remembered for Covid 19, virtual meetings, working from home, changing Broker-Dealers from SSN to SAI, a vicious market meltdown and then equally insane market melt-up, a bitterly contested election, and Covid coming back with a vengeance.
From an advisor standpoint, I will remember two highlights from 2020. First, how many conversations I had with 401(k) participants and long-time clients who insisted on getting out of the market to avoid losing money. First in March, when the market was in a free fall, and then again prior to the November election. Never in my 30 years have I worked so hard to convince people trying to predict the future is impossible and that doing nothing usually leads to the best outcome financially. Sadly, some people didn’t heed our advice and sold and will never recover their losses. Hopefully, those who lost and others who listened will remember their promise, that they will never try to time or predict the market again. My second memory will be that despite being involved in investments for 46 years, that 2020 proved once again, that I have not seen it all. Every year starts out with optimism and a belief that this will be the year that the stock market earns a steady return similar to the long-term average of 10%. It never seems to happen and 2020 will be one for the books! Instead, 2020 will be remembered not just for the fastest drop in history but for the unfathomable returns in disrupter IPO’s like Door Dash or AIRBNB, stay at home stocks like Peloton and Zoom and vaccine makers like Novavax. A new platform, Robinhood, allowed small investors including those receiving unemployment, to buy small quantities of high-flying stocks and make large profits pushing the prices skyward. We’ve seen this phenomenon before with internet stocks, oil, bitcoin, etc. and it usually ends suddenly and badly. Meanwhile, investors holding age-old solid earnings and dividend-paying companies like AT&T received their dividends but not much else. Luckily, those same investors might have benefitted from their bond holdings that saw values increase as the result of a generous Federal Reserve who promised and delivered by committing to billions of monthly bond purchases across the entire spectrum of bonds including junk bonds and municipals.
As we end 2020, many investors are asking what the economy and markets look like in 2021 and beyond? More specifically, will a Biden administration radically affect the markets in a negative way? Some are comparing the recent sky-high returns in technology to the bursting of the internet stocks in 2000-2002 and wondering if that outcome is likely for our future. Let me address these questions without the assumption that my crystal ball is any clearer than anyone else’s.
Looking back at the year 2000, I do see some similarities between today’s craze and that one. However, I see more striking differences. Yes, in both cases there are prices for stocks that seem astronomically high, but in 2000 the companies in question were losing large amounts of money. Many of today’s highflyers have earnings and a solid business model that may allow more growth into the future. I believe the biggest difference between then and now is the Federal Reserve. In 2000, Alan Greenspan knew the economy was overheating and decided to raise interest rates, which is a big no-no for stock markets. For 2021, the Federal Reserve has indicated that they plan to keep rates low and allow the economy to heal, even run a bit “hot”. That may allow stocks to continue for some time, depending on other factors. The effect that President-Elect Biden will have on the economy is greatly feared and likely overstated. Even if Democrats win both seats in Georgia, the margin will be so small that is unlikely that radical change will result. I will not hazard guess what markets will do next year except to say that there will be opportunities for companies that innovate and meet consumers rapidly changing needs to make large profits. Many people, including myself, believe that 2020 forced consumers to accept technology that would have taken many more years to even try, Zoom was one such technology. Without Zoom, many of our remote happy hours and family gathering that have kept us sane would not have been possible. Think about how virtual learning has changed education opportunities for future generations.
Final thoughts: Mark Twain was credited for saying “The older I get, the smarter my father seems to get”. Growing up, my dad always told me that “most of our worrying is for naught”. Looking back at 2020, I agree wholeheartedly with my dad and Mark Twain.
Jay Gershman is the Owner and Founder of Retirement Visions LLC, a West Hartford-based financial planning firm that focuses on comprehensive life planning and financial management. For more information, visit www.allset2retire.com. Information and advice are for guidance only and opinions expressed belong solely to the author. Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Retirement Visions LLC and Securities America are separate entities.