This has been a year of reflection and learning beyond par. Nobody could have predicted the happenings of this year. The pandemic has caused a significant number of job losses and severe pain and suffering for the people. People with fewer means have been disproportionately affected.
The market has gone through a roller coaster ride. From February to March, in a very short period, Nifty went down by approximately ~40%, and since then it swiftly recovered and has gone up by ~75% from the March low. The story is the same all across the globe.
There is a huge disconnect between Main Street and Wall Street.
Situation Today
Vaccines are finally getting ready for public usage. Till date, FDA has approved vaccines from Pfizer and Moderna. Other vaccines are close at their heels. The focus has now shifted to delivery of vaccines to a large number of people in the shortest possible time. Overall, it appears that from the second half of 2021, we will start seeing some normalcy in our life but till then we have to keep our guards up.
The pandemic has increased the usage of the digital economy. The consumer staples have done phenomenally well as people are spending most of their time at home. The interest rate is at its lowest level across the globe and the government is printing money to keep the economy afloat. The low interest rate has made debt asset class unattractive but people are doubling down on real estate and equity. While the equity market performance is not broad-based, the markets across the globe are at a new high. The correlation between the economy and the market has become weak.
Economy & Markets
With the fear of the pandemic subsiding, the premium valuation demanded by the digital economy and consumer staples stocks may as well rotate into beaten-down sectors such as Financials, Industrial and Materials. While the growth stocks have done exceptionally well in the last decade, it may finally be the time for the value stocks to get its due.
From the market perspective, the US market has been on one of the longest bull runs and has handsomely outperformed the global markets. But the cycle of low interest and low inflation will be turning shortly for the US. If that were to happen, the international and particularly emerging markets may see relatively better performance. Hence, the asset allocation should be reviewed for geographical diversification.
Investment Approach
The market performance during pandemic has made us even more humble. There is no cookbook to follow for such a steep fall and rise in a record time. Hence, any effort to time the market and eke out additional gain has struggled.
For a large majority of the people, having a Financial Plan makes it easy. The investment options for a goal is as per asset allocation aligned to the risk profile of the person. The investment is done periodically to average out the buy price. The sale is done as per the investment plan to meet the withdrawal needs of the goal.
The advantage of this approach is that it removes the biases and emotions out of the decision enhancing the chances of its success.
I am signing off with this blog for the year 2020 and looking forward to your company to make 2021 even more memorable. May the New Year bring you good health and happiness!
The writer is a SEBI Registered Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services. If you want to know more about him, click on https://finmyn.com/about/