How to Invest in 2021

Investing During the COVID-19 Pandemic

There is no specific guide for investing during pandemics as they are considered rare events in history and eventually come to an end. However, some lessons can be drawn from investing during recessions. Typically, investors remain invested according to their long-term strategies. As seen after the global financial crisis of 2007 and 2008, investors must focus on a long-term investment strategy to stay on track with their financial plans. Short-term events may always impact your investments and the stock market, but overreacting to these events can hinder your progress toward your long-term goals. Plan your investment strategy so that it remains effective even after a recession or pandemic has concluded.

How the New President Affects the Markets

Investors entered 2021 knowing that President Joe Biden would take office, and the new White House administration could bring changes to the stock markets that investors may feel. A compelling comparison as we begin 2021 is with 2009, when Barack Obama assumed office amidst the Great Recession. As you may recall, 2008 was a terrible year for the stock market, as the S&P 500 lost more than 38% during the year following the financial crisis. After the index hit its lowest point in March of that year, it rose over 20% by the end of 2009, followed by an increase of more than 11% in 2010. This marked the beginning of a bull market that lasted 11 years until the market declined in March 2020. The Obama administration helped restore the economy from the financial crisis and had a positive impact on the market. It will only be a matter of time before we see how the markets react to the new Biden administration and how it manages to combat the COVID-19 pandemic quickly.

Market Forecasts for 2021 and Beyond

With the start of each new year, diverse forecasts for the stock market emerge, alongside a range of projections for other financial markets and the economy. Insights from institutional investors for the new year can provide trends for individual investors to consider, but investing is a long-term endeavor, so it is typically unwise for most of us to rely on any short-term projections for investments.

For example, in its January 2021 forecast, JP Morgan Chase optimistically predicted that the S&P 500 would end the year at 4400 points, up from 3756 at the end of 2020. This would be a significant increase of about 17% for the year, similar to the gains seen in 2020, and could be favorable for individual investors as the stocks in the S&P 500 are widely owned, including in retirement accounts. JP Morgan’s forecast for the rise of the S&P 500 in 2021 is based on its view that many sectors of the U.S. domestic market remain undervalued relative to their price levels before the pandemic. If the pandemic ends, stocks could return to the levels seen before it began in 2020.

In contrast, Vanguard Investments noted in its 2021 forecast report that U.S. stocks would see returns ranging from 3.7% to 5.7% for the next decade and limited returns between 0.75% and 1.75% for fixed income in the U.S., primarily bonds, over the same period. The firm is looking for higher returns of 7% to 9% for non-U.S. stocks (developed and emerging markets) over the next decade as well. This is because Vanguard’s outlook is based on the view that non-U.S. stocks are currently undervalued compared to U.S. stocks, suggesting it may be worthwhile for investors to explore some non-U.S. stocks.

3

Investment Tips for 2021

Your investments in 2021 or any other year should be guided by your long-term financial goals, time horizon, and risk tolerance. However, here are some tips for investing in 2021:

Look for Innovative Companies

Innovative companies often offer groundbreaking business models, disrupt established sectors, or create entirely new industries. In some cases, stocks of innovative companies like Amazon, Facebook, Netflix, and Uber enjoyed years of strong price growth, but this type of investment can also be risky.

Consider Consumer Needs

According to Gatzemeier, once the pandemic is under control, people will be ready to resume their normal lives again. He noted that companies across a variety of industries that meet these needs could be good options for investors to consider in 2021. For instance, during the pandemic, consumers traveled less. Widespread vaccinations and herd immunity may soon make travel popular again. Stocks in these types of sectors may regain price momentum after months of stagnation during the pandemic.

Look Abroad

The Russell Investments Global Report for 2021 also favors non-American stocks over American stocks. “The economic recovery post-vaccine should favor cyclically undervalued stocks more than expensive tech and growth stocks,” the report stated. “Compared to the U.S., the rest of the world is awash in cyclically undervalued stocks.”

Cyclical stocks tend to move according to market and economic conditions, while value stocks are those currently undervalued by the market. In other words, during 2020, due to the pandemic, we saw tech stocks and other stay-at-home stocks perform well, causing many other well-known names to lag. Russell wrote in the report
Source: https://www.thebalancemoney.com/how-to-invest-in-2021-5114073