Looking forward to 2021, investors may be nervous about the overall state of the economy. The coronavirus pandemic has had indelible effects on all aspects of life, but particularly where the economy is concerned. Unemployment rates have somewhat recovered, but in many sectors, there has been little to no improvement.
Many people have been surprised that stock returns have continued to be positive since the summer of 2020, betting on the increasing likelihood of vaccines on the horizon and the economy eventually bouncing back or growing even stronger.
David Ebrahimzadeh explains some of the changes that investors should consider making this year, drawing on current economic indicators as well as projected changes in the business climate.
Low Interest Rates and Cash Investments
The Federal Reserve Bank lowered interest rates in 2020, responding to the market depression. These rates are expected to stay low in the coming year. Since short-term rates are remaining low, some investors may wonder whether it is a good idea to have large holdings in cash.
Cash is always a good idea to have in your portfolio because it can be a stabilizing asset. Cash can help you buy stocks when prices are low. Cash is also a hedge against disruptive events like job loss. Everyone should have a three- to six-month emergency reserve account for these unexpected expenses.
Tax Outlook
Since President-Elect Biden is about to take office and the two Georgia runoff elections in the Senate fell to the Democrats, many investors may be nervous about the impact of tax law changes that could be coming this year. A Democratic majority could mean that the federal estate tax exemption is in jeopardy. If this happens, there are several concrete steps you can take to keep your tax liability under control.
If you have significant assets, you should consider a gifting strategy that will help you take advantage of tax exceptions. Starting trusts is another good way to protect yourself from tax changes.
Diversification
In today’s challenging economy, diversification is as important as it has ever been. Each year, previously successful investments have flopped while others have risen. Spreading your money across various types of investments is a classic strategy because it works.
Rebalancing Your Portfolio
The stock market is always changing based on current economic conditions. Some sectors in the economy may not be set for a return in 2021 but may instead be prominent in 2022. This includes banks, energy stocks, and airlines.
Consult with your investment planner to help you rebalance your portfolio to meet today’s needs and anticipate changes that may happen later in 2021 and in 2022.
Look Abroad
Different parts of the world are experiencing rebounds at different times. For example, China has largely recovered from the COVID pandemic, though there are still outbreaks from time to time. This may be a good time to invest in China and other countries where the pandemic has been beaten back.
The Growing Home and Business Tech Market
Since March 2020, many professionals have been forced to work at home. Many families have relied on the Internet even more than they had in the past during the pandemic. This means that there is a significant potential to reach these customers with new tech products and services, including at-home delivery services and smart home technologies. It may be a good idea to invest in this sector.
Healthcare Stocks
The healthcare field has grown thanks to COVID. Telehealth companies have seen particular growth in their value. Research and development have been important as well. Companies that have been part of the development of the COVID vaccines will also see significant success this year.
Shifts in Government Spending
Since the Democrats now hold the White House and both houses of Congress, spending patterns are poised to shift. For example, infrastructure projects that were delayed under the Republican majority may be greenlit. This could lead to growth in materials and industrial stocks.
Climate Change Investing
Another area that may rise in 2021 is alternative energy and other stocks concerned with the environment. The Democratic government will likely shift its priorities toward combating climate change. This may be a good time to look into solar or wind power stocks as well as electric cars.
Adapting Your Portfolio to Today’s Conditions
Dan Lok advises that investors take a close look at their investments for 2021. The economy is constantly shifting, but there may be certain sectors that are poised to grow this year. Government changes will also have a significant impact on the financial markets.
No matter what investors choose to do, David Ebrahimzadeh recommends that they are properly diversified and that they rebalance their portfolio in accordance with today’s economic conditions. Taking measured risks is always appropriate.
