Blog post #471
November was one of the best months ever for nearly all asset classes of public stocks, both in the US and Internationally.
Many asset classes gained 10-15% in November 2020 alone, with several asset classes exceeding 15%.
Let’s put that into perspective. The expected return for a full year for US large company stocks is in the 8-10% range. In one month, nearly all asset classes exceeded the historical average return of a full year.
If you go back to October, things didn’t look quite so good. There was great uncertainty about the US elections. People were very emotional and concerned. Covid cases were growing and continue to grow. There was hope about vaccines, but no news at the end of October about the progress of vaccine trials.
If you had let your emotions control or influence your investment strategy, you may have wanted to pull money out of the stock market or waited to invest new money into the market earlier this fall.
Emotions don’t lead to good investment decision making. We have learned this repeatedly. It is hard to do….but being rational and reasonable is a better strategy than relying on what your emotions want you to do.
2020 has taught each of us many things. One major lesson of 2020 is that having a disciplined investment strategy is much better than having an emotional investment strategy.
With all the change and uncertainty that exists, you can rely on our consistent investment philosophy. The stability of our beliefs and advice should provide you with comfort.
We regularly encourage you to stay in the market and adhere to your asset allocation plan, regardless of what you are worried about or what is going on in the world. Talk to us if you have concerns, so we can discuss those issues with you.
Last February and March, in the depths of the stock market downturn, no one could have predicted that stock markets would rebound so strongly and be at the levels they are at today.
Emotionally, the stock market gains since March 2020 may not make sense to you. The gains are logical. The stock market reflects the current and future earnings, and expected future cash flows, of public companies. The stock market does not directly reflect the misery of neighborhood restaurants and unemployed workers in certain sectors. The stock market looks forward. The economic data and corporate earnings of many public companies are quite positive.
As a firm, we don’t let our own emotions guide our investment recommendations and actions. When markets fell, we recommended clients to purchase stocks. We pro-actively placed trades to do tax-loss selling where we could, to save clients taxes.
Now, as markets have rebounded, we are looking to take some profits. We are reviewing client portfolios for rebalancing if their stock exposure has increased above their respective target range. These are rational and disciplined actions, not emotional reactions.
We are taking the disciplined steps that you expect us to be doing. Buying low. Selling high. Rebalancing. Making sure that you are not taking on more risk than you need to.
For most investors and clients, their primary long-term concern is about not having enough money to live comfortably in retirement. We understand this.
When markets plummet, as they did earlier this year, it may have been hard to stay the course and remain in the stock market. It can be hard not to be worried and emotional, and still feel that you will have enough money and be comfortable for years into the future. The gains of the past months, and November in particular, should make those hard months worthwhile.
This is another reason why you work with us. By being rational and non-emotional, our investment strategy strives to help you make progress towards your financial goals and provide those of you in retirement with comfort and financial security.
Talk to us. We want to listen. We want to assist you, your family members and friends.