If you understand the title, then I know that you’re probably mad that you haven’t been able to buy any of the names that have benefitted from #Wallstreetbets in your 401k. Shoulda, Woulda, Coulda, is synonymous with financial Monday morning quarterbacking, but don’t beat yourself up, your 401k is a marathon, not four 15-minute quarters.
To be honest, it was pretty cool to see the little guys stick it to the man. It was reported that a group of individuals, whose parents lost everything during the financial crisis at the hands of a few hedge funds, were able to band together and ramp up the stock prices of a select few names that they found had heavy short exposure (meaning they sold the stock first and plan to buy it back later, hopefully at a lower price). The subsequent ramp up in the stock price caused chaos for the hedge fund, forcing them to book massive losses. Again, that’s how it was reported. Whether or not that’s actually true remains to be seen, but if it was, my hat’s off to them.
Your 401k is structured to try to take out the outliers in investing such as these massive, short term moves and create a strategy that is timeless, even though at times it may seem boring. Boring is good, boring is what we should be striving for. Boring is how you get really good at something. Boring can be otherwise known as consistent, unwavering, dependable, reliable and predictable.
I know…when we look at the last 12 months you could argue none of these synonyms apply. However, if you went to sleep at the start of 2020 and just woke up, you’d see that the stock market (quantified by the S&P 500) is up 22% since that time, and would probably say, “that’s pretty good”.
Now for those of us in the real world, the past 14 months were anything but boring. But if you’re reading this, then you made it through the other side of the rollercoaster. Hopefully you were able to maintain your discipline in investing and didn’t jump in or out of the market. If, however you did succumb to your inner investing demons, then the best part about this is that you still have the chance to get back on track.
The next few years for stock market returns, I believe will continue to be good. I do feel that there may be a shift from what has worked in the past year to those companies that did not do as well. Think smaller companies rather than the mega companies, think financials and energy companies that did not do as well as the big tech names. The basis of my thoughts is around the MASSIVE amount of stimulus in the market, which tends to benefit smaller companies that can’t get access to capital as easy as the bigger ones. Stock markets love liquidity.
Keep the faith, stick to your plan and if you have any questions or need to be talked off the ledge, feel free to give us a call.
As always, I’ve included index returns so you can see how your fourth quarter performance stacks up.
Mick Graham, CPM®, AIF®
Branch Manager/Financial Advisor at Raymond James in Melbourne, FL
Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. There are additional risks associated with investing in an individual sector, including limited diversification. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
S&P 500 Value is a market-capitalization-weighted index developed by Standard and Poor’s consisting of those stocks within the S&P 500 Index that exhibit strong value characteristics.
The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.