As we close out the year it only makes sense to take a look back on what the markets did - the good, the bad, and the unusual. The big story and most significant bad/sad/scary parts of 2020 occurred outside of markets, save the sudden and brutal bear market of February-March. For those who weathered that brutal (and temporary) hit to their portfolio values in the late winter the good came in being rewarded for your patience and resolve as all three major US indexes are hitting all time highs as we write this summary. The unusual then is this... in spite of the unprecedented challenges that 2020 has presented us all, those who have set aside a portion of their earnings for the goals they have for themselves and their loved ones have been able to move closer to those objectives through personal planning and the ownership of quality assets.
Below we highlight some of the charts that, in our opinion, do a good job of recapping the year that was.
2020 World Market Index Returns
While March was horrible, the year turned out slightly above average for US stocks. It’s important to pay attention globally however – China was the best performing market.
It may be a thought in the middle of a pandemic that buying vaccine stocks would make you money – but is it that easy? All but one had diversified market-like returns, and some even lost money. The moral is diversify: diversified pharmaceuticals did better than 4 of the 6 vaccine companies. And the broader S&P 500 actually had a better year than the pharmaceutical sector.
The Story of 2020: Elon Musk vs. Warren Buffet
In a world currently dominated by new technologies, Warren Buffett has lost a little luster (for now). Tesla – as the 20th ranked car brand in sales in 2019, and growing on that number for 2020 – currently has a value that is more than Volkswagen, Toyota, Nissan, Hyundai, GM, Ford, Honda, Fiat Chrysler, and Peugeot….COMBINED*! While this may be a “new paradigm”, it seems a bit much.
Unemployment in 2020 (and beyond)
There was an incredible labor disruption as a result of COVID, but those unemployment numbers are coming down quickly. Historically – and ironically - the best stock market performance comes when unemployment is high, and typically underperforms when unemployment is at its lowest point.
Cash on the Sidelines
Institutions and even households will not watch their money earning nothing indefinitely, it may get used (think the best vacation ever after a year+ sitting in your living room), or it may find its way into longer term assets (equities, bonds, real estate). Either way, for those of us who own assets this amount of cash floating out there earning nothing should be considered a positive.
Rebalancing: Taking Action When it Doesn't Feel Good
One item that certainly helped performance in 2020 was rebalancing portfolios in March. Rebalancing is taking money from bonds and buying stocks when they are lower (or the converse if stocks are much higher). Rebalancing is an often-overlooked tool that adds value over time to your portfolio. If you took a straw poll of 10 friends, you’d probably find that over half had advisors that did nothing proactive during this period. We will continue to work to use this tool to your advantage.
Cash isn't always King
For confirmation that cash only gets you so far, consider the above as evidence that quality assets in portfolios work when given the time to work (here are three we’ve owned consistently in portfolios compared against the indices). For 2021, we will continue on the same path. While there’s no guarantee they’ll work as well as they did in 2020, we will continue to utilize quality tools in moving you toward your plans for the future.
Finally, let us say thank you once more this year and invite you to come see our new office in 2021. Amidst all the other craziness that 2020 brought us, with your support we were able to start Professional Planning & Wealth, and for that we will forever be grateful.
We are excited for 2021, and look forward to seeing you soon!