the right way to invest blog
Here you’ll find the Q4, 2020 Market Summary. [page graphics pasted below] Page 3 shows a strong 4th quarter for US stocks, international stocks, emerging stocks, and global real estate. When you compare page 3 to page 4 “Long-Term Market Summary” you’ll see 4th quarter capped off a strong year for stocks led by the US stock market and emerging markets. Global real estate was down over 9%, but it’s still a slice of a diversified portfolio we want to hold. Looking at global real estate’s 5- and 10-year track record supports that claim.
With everything negative that happened in 2020, it might come as a shock that markets performed so well. When I wrote my Q1, 2020 Market Summary – only 9 months ago – stocks and global real estate were down for the year anywhere from 21% - 29%. Markets go up and markets go down, but it’s important to remember major stock markets go down for a short time, while they ultimately go up forever. When they do go down, we need to be ready buy good companies on sale, and that’s what we did in March of 2020.
Hopefully, we don’t go through another global pandemic, but we do know we will go through another market downturn (it will probably be sharp…but we know it will be temporary). When that happens, we’ll be prepared; we’ll be more relaxed cause we’ve seen it before, we’ll capitalize on it and our resolve will be rewarded once again. We don’t know when it will happen, but when it does, we’ll be ready.
Most stock markets have continued to rebound since a very dismal end of Q1 / beginning of Q2, 2020. Here you can see DFA's Q3, 2020 Market Update Summary. I want to point out two areas of the stock market that have recently performed very poorly: real estate and value stocks (you can see their respective returns on pages 4, and 8 – 10 of the attached PDF, and in the graphic pasted below).
I don’t need to define real estate for you, but maybe I do for a value stock. A value stock is defined as stock of a company that is trading at a low price relative to some fundamental measure of that company’s worth, whereas a growth stock is one that can be defined as stock of a company that is trading at a high price relative to some fundamental measure of that company’s worth.
Despite their recently poor performance, real estate and value stocks are included in our investment portfolios (along with many other styles and types of investments in the U.S. and abroad). These areas have been underperforming lately, but that is not cause for alarm. Not everything will be great at once, and likewise, not everything will be terrible at once, either. That’s why we want exposure to everything – known as diversification – because, at times, real estate will be great and at other times it’ll be down in the dumps, and right now growth stocks are hot (we own those, too) while value stocks are not, at some point that will change and value will be rewarding us with great returns while growth stocks lag behind. We don’t know when one area will do great or do poorly, so we own all areas, and when an area is down it gets a little more attention in the terms of additional investments – this is us buying good stocks while they are on sale. Right now when we rebalance or invest new money like rollovers and IRA contributions, we’ll look to put a little extra into the areas that are struggling knowing that those trends won’t continue for ever and our retirement portfolios will ultimately be rewarded for our resolve. Again, buying good investments while they are on sale makes for a fantastic long-term wealth building strategy.
Have you found yourself saying, “Ugh, I hope that guy doesn’t win!?!” What if “that guy” does win? How does his victory impact your retirement portfolio? Notice I didn’t specify “that guy” is Trump or Biden…because – when it comes to your retirement portfolio – it doesn’t really matter who wins.
“It’s natural for investors to look for a connection between who wins the White House and which way stocks will go. But as nearly a century of returns shows, stocks have trended upward across administrations from both parties.” Taken from DFA's article here, and referencing the below graphic, regardless of the party in the charge, stocks go up when given enough time, therefore your retirement portfolio will go up when given enough time, as well. Come November 3rd, you’re welcome to be elated or livid for other reasons, but don’t be for stock market reasons.
Here you can view DFA's Q2, 2020 Market Summary Report. And check out this video where we take a deeper look into it, and explain what it means to you.
Michael Pensinger, CFP® is Owner and President of Pensinger Financial, Inc.
He grew up in Park Forest, Illinois and now resides in Lemont, Illinois with his wife, two children, and two dogs. Michael is actively involved in his community; coaching kids' sports, having served as Treasurer for the Lemont Area Chamber of Commerce Board of Directors, sitting on the Board of Directors for Hope & Friendship Foundation, and volunteering for the Lemont Heritage Woodland Sanctuary Open Space Committee. Read More
Lemont, Illinois 60439