Hindsight is 2020

Perhaps the perfect way to “look at” 2020 – is in hindsight! Who on earth could have predicted what went down in world and market events in 2020, both bad and good? Who will ever be able to accurately predict markets? And why is this important?

Funny, there will always be those people who seriously believe and will say out loud that:

  • they knew a pandemic would strike,
  • the economy was due to come to a screeching halt,
  • they predicted the timing of the market turnaround,
  • they knew the US Fed would abruptly lower benchmark interest rates back to zero,
  • Etc., etc., etc.
The smartest of the smart recently admitted they could never have predicted the events of 2020 and how they played out in stock, bond, real estate, and commodities markets.

But those people are classic “Monday Morning Quarterbacks”. Did those same people predict:

  • The S&P 500 would have 33 record highs in 2020? And finish Dec 31st at a record high?
  • Indexes tracking Global stocks, the S&P 500, AND raw materials (like steel, oil, corn, and grain) would each rise by at least 35% from their March lows? Commodities alone would rise 60% from their March lows?*
  • Oil would trade briefly at a price below zero? (Meaning producers, instead of selling their oil, paid to have the oil taken away.)
  • Small company stocks^ would outpace every major market category in the 4th quarter? And be up 3 times the amount of the Dow and S&P 500?*
  • Tesla would be up nearly 700% and become the most valuable auto maker in the world??

(Hint: The answer is NO.)

The smartest of the smart recently admitted they could never have predicted the events of 2020 and how they played out in stock, bond, real estate, and commodities markets. Even The Wall Street Journal on January 4, 2021 looked back and called 2020 a “Crazy Year in Financial Markets” and cited investors who “Bet on [the] Everything Rally”.*

Prediction and planning can only be based on things we can control – which is becoming less and less. Even still, the financial things we can control include:

  • How much we spend (for the most part)
  • On which categories we spend money
  • How much debt we take on
  • How hard we work and study (for present and future financial gain)
  • Asset allocation in overall investments and portfolios
  • Periodic amounts we save (to a certain extent)
  • And a few other things.

It is as important as ever to establish a handful of elements within our control. Probably for a decent share of 2021 (oops – there I go predicting), a number of things may remain out of our control with the pandemic still present. Here is a partial list of where to insert control in both the short- and long-term on the financial side of things:

  1. Have and grow an emergency/slush/”rainy day” fund (no matter how wealthy a person is). This action is called “having an intelligent amount of cash on hand”. Please ask me more about this one.
  2. Have and grow a separate emergency fund or HSA for future healthcare expenses, both routine and unforeseen.
  3. Know roughly how much you spend monthly – on yourself and your kids, grandkids, nieces, nephews, and family.
  4. Know and understand the asset allocation of your portfolio and savings. Asset allocation can be adjusted over time as savings increase, job situations change and as an investor gets closer to retirement (or whatever retirement or slowing down someday looks like to you).
  5. Minimize debt at all costs.

Those without 20/20 vision typically wear eyeglasses or some kind of prescription eyewear. The #1-5 list above can serve as a set of flashy bifocals to use to focus in on a handful of points in the midst of always unpredictable financial markets and economic conditions.

*WSJ.com. Akane Otani, Amrith Ramkumar, Market Boxscores, Major U.S. Stock-Market Indexes.

^ As measured by the Russell 2000 index.

Thank you for reading, stay safe and Happy New Year!

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