- Market Insights
- 3 mins
Investing is often as much about psychology as it is about facts and figures. Even though many investors understand that staying invested for the long run is the best way to achieve financial success, it's normal to be distracted by short-term events nonetheless. News headlines tend to be loud and negative whereas positive economic and market trends can be slow and unseen. For this reason, financial markets often perform well when investors least expect. The holiday season is the perfect time for investors to remember that there is still much to be thankful for amid the uncertainties.
For instance, the stock market continues to rally with the S&P 500 gaining more than 27% year-to-date with dividends. The economy has staged a once-in-a-lifetime recovery with the unemployment rate falling to only 4.6%. The average consumer is in a strong position with high savings now shifting into spending. The profitability of public companies has reached record levels which is expected to continue. The government has agreed on an infrastructure spending bill and the Fed will maintain its current path with Jerome Powell as its chair.
All in all, these factors are driving portfolio returns in spite of constant fears and concerns over the past year. Yes, there are challenges ahead and markets never move up in a straight line forever. The pandemic is still an issue in many parts of the world and continues to affect supply chains. Inflation at multi-decades highs is the 800-pound gorilla which is impacting consumer and business confidence. Not enough people are participating in the labor force which could harm future growth. The government debt continues to grow with no end in sight. So on and so forth.
The fact that there are risks for investors to navigate is not only normal - it is always the case. Not only does the stock market tend to rise over time but there has never been a period during which investors were perfectly content. In fact, the reason that investors can earn positive returns is exactly because they are willing to accept certain risks when others are fearful. Thus, it is not just a nice coincidence that investors who stay diversified through thick and thin tend to do well - it is a direct consequence of the psychology of markets.
Just as many have taken up the practice of expressing gratitude in their personal lives, the holidays are a good time to do so in our investing and financial lives. While the next few years may be difficult with rising inflation and interest rates, long-term investors have been through similar if not worse challenges over the past few decades. The fact that the economy and markets are on such solid footing is something few could have imagined in early 2020. With this in mind, holding an appropriately constructed portfolio and focusing on the positives, especially with the guidance of a trusted advisor, is still the best approach to navigating the period ahead.
Below are three insights that can help remind investors of everything there is to be thankful for in 2021.
1. Global stocks have generated strong returns this year
Global stocks have performed well this year even after their significant rallies last year, with U.S. stocks leading the way. Developed and emerging markets have lagged but many could catch up as they recover from the pandemic and as supply chain problems are resolved.
2. The average household is doing well financially
The average U.S. household is in the best financial position in history. While much of this is due to the financial market recovery (which is an important reason to be invested), the economy and labor markets are also helping.
3. Holding the right portfolio is the key to investing success
Holding a diversified portfolio is the best approach to benefiting from market upside while protecting from downside. All investors should review their portfolios on a regular basis to ensure that they still match their objectives. A well-constructed portfolio most likely performed well this year and is an important reason to be thankful.
The bottom line? There is much to be grateful for this year with markets near all-time highs and the economy continuing to grow.
