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Foster Denovo|News & opinion|Opinion|Looking ahead in 2021 after a year of investment volatility

Looking ahead in 2021 after a year of investment volatility

When you set out plans at the beginning of 2020, we doubt you thought things were going to turn out as they did. We will look back on 2020 as the Covid-19 crisis year. The Covid-19 pandemic and restrictions mean that even some of the best-laid plans have gone off course. For investors, the last 12 months have been marked by uncertainty and volatility.

When reviewing your finances in light of 2020 market movements, putting it behind you and looking ahead is important.

2020: A year characterised by volatility

Just a few months into 2020, the extent of the Covid-19 virus became known and countries around the world reacted with measures to slow the spread. From social distancing to full lockdowns, these inevitably had an impact on economies and stock markets.

The speed at which the pandemic escalated meant markets suffered a sharp fall in March. However, things did stabilise as governments largely took steps to support economies, jobs, and businesses. While volatility has continued throughout the rest of the year, gains have been made and a general upwards trend can still be seen when looking at the medium and long-term performance of investment markets.

For investors, 2020 has been a year of challenges and a need to hold their nerves. But the majority of those who did, and focused on their long-term plans, have benefitted.

So, it’s time to put the challenges of 2020 behind us, focus on the outlook for 2021 and review personal goals.

2021: Uncertainty remains but there are reasons for optimism

We ended 2020 with vaccine news, providing some hope that the spread of Covid-19 will be brought under control and the restrictions affecting markets will lessen. It will take some time for this to happen and life to return to ‘normal’. Yet, it’s a reason for optimism.

In fact, while there will still be challenges and no doubt surprises in 2021, it’s expected to be a return to ‘normal’ where investment markets are concerned. Investment experts are predicting growth gradually returning in 2021 to deliver returns.

Morgan Stanley’s strategy team, for example, is forecasting 25% to 30% earnings per share growth across regions in 2021, with developed markets having the greatest potential. Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley Research said: “Though challenges remain, we think this global recovery is sustainable, synchronous and supported by policy, following much of the ‘normal’ post-recession playbook.”

Of course, investment returns can’t be guaranteed. Remember, stick to your long-term plan and have confidence in the investment strategy set out for you.

Looking beyond 2021 and focusing on your goals

While there is a positive outlook for the coming 12 months, the movements of 2021 shouldn’t be your focus either. Instead, a long-term focus when investing is important.

You should always invest with a long-term (minimum of five years) timeframe in mind. For many investors, their investing timeframe will be even longer. Take your pension investments, for example, these could be invested for decades before you even start thinking about accessing them.

With this in mind, the daily, weekly, or even monthly movements within the markets have little impact on your goals. What matters is the overall trend and long-term performance.

Focus should also be on ‘smart diversification’. In other words, investing should be across different asset types, such as bonds as well as equities and across geographical jurisdictions, so they are not confined to one or two countries or regions. It should also involve investing across investment styles, that should include active management and index/passive investing, and across different investment philosophies that includes growth and value.

Although ‘smart diversification’ doesn’t guarantee performance in any way and does not eliminate risk completely, having a diversified portfolio across asset types, geographical jurisdictions, investment styles and philosophies can help investors minimise their risks.

So, although ‘smart diversification’ does not guarantee against loss, it will likely help with the most important component of reaching long-range financial goals whilst minimising risk.

Therefore, understanding your goals and investment timeframe is so important when making investment decisions. It can help you create a balanced portfolio that accurately reflects what you want to achieve and when. Tuning out short-term volatility and news can be challenging, but for most investors, these have little impact. That’s not to say you shouldn’t review your portfolio or make any changes. These are both still essential steps. However, your goals and long-term performance should drive this, rather than what’s happened in the last 12 months. If your priorities have changed, rebalancing your portfolio may be necessary if, for instance, your risk profile has changed, or you have a new goal.

We can help you understand where adjustments are necessary and keep you focused on the bigger picture.

Creating an investment strategy for your goals

As financial planners, we’re here to help you create an investment strategy that matches your goals and financial situation. We’ll take the time to understand your motivation for investing and what your options are, to build a complete financial plan that’s appropriate for you. Contact us to find out more.

 

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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