What Could 2021 Hold for the Investment Markets?

What a difference a year could make. Already US stocks have recouped most of 2020’s losses linked to COVID-19, and many investors are betting on a continued recovery in 2021. The 2020 downturn broke records for the sharpness of its drop. However, its recovery has been equally sharp, thanks to the massive policies that the federal government has put into place to help cushion the blow.

Trillions of dollars in stimulus from central banks, governments, and moves to start re-opening businesses are contributing to investment predictions of a strong recovery in 2021. One of the most hopeful signs is the decline in the volatility of the stock market. U.S. and European stock valuations, based on 12-month forward price-to-earnings ratios, are just short from their pre-coronavirus levels, leading to the belief by some investment strategists that corporate earnings will make a full recovery in 2021. 

The real estate market is another story. While housing markets across the country have proven to be especially resilient in the face of the economic fallout from COVID-19, some forecasters believe the pandemic could cause home prices to drop in 2021. The reason? A couple of factors: prolonged economic damage from the coronavirus as well as increasing uncertainty about the federal government’s long-term commitment to the policies that have kept the housing markets afloat over the past several months. 

So, what if you have money invested in the stock market for retirement? What should you be considering when it comes to investing in 2021?

Smart decisions depending on your age

Even though much of the 2021 investment predictions are favorable, many strategists acknowledge the fact that a second deadly wave of COVID-19 in the fall linked to reopening the economy is a serious risk to the U.S. economy as well as the global economy. 

What does this all mean if you have money invested in the stock market and you’re retired or near retirement? In general, the answer would be to not panic and ride it out because, historically, the markets should bounce back. However, there are a few things to be thinking about, depending upon your age.

If you’ve just retired or are planning to retire in the near future, remember — you are still a long-term investor. You need to keep thinking in terms of decades, not this year or the next.  You’re not going to need 100% of your money the minute you retire. A drop in the market, even one like we’ve experienced during the early stages of the pandemic, is not going to cash-restrict you right away.

If you are some years down the road from retiring, you may want to think about taking a look at your retirement plan with respect to reassessing your risks and rebalancing your portfolio. A caveat — moving things around too much during this period of uncertainty may not be the best idea.

What we’re looking at

While the investment optimists are predicting that the markets are going to make a full recovery and may even reach new highs, investment realists are cautioning that, while the market will recover, no one knows just how quickly that will happen until there is a steady and consistent decline in COVID cases and businesses can get back to earning and growing. 

At Blankinship & Foster, the right financial advisor for your investments, our goal is to provide you with thoughtful and caring financial advice and management whether you’re retired or planning on retiring in the near future.

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