By: Stone Wealth Management
Remember how the S&P 500 dropped almost 20% during Q1 2020?
How scary that felt and how uncertain we felt about COVID-19 and its impact on our economy and our lives? Compared to the state of the markets a year ago, a 6% gain in the S&P 500 last quarter feels like a return to "normalcy". But the past year has been a reminder that volatility IS NORMAL.
Below please see the past 15 years of market returns in various asset classes. The red boxes are the S&P 500. How many years was the S&P 500 at the top of the stack? How many years near the bottom? What can we expect the next fifteen years of the chart to look like?
And what is the reward for staying invested during scary market cycles?
For perspective, let's look at the S&P 500 return from the pre-COVID peak to now. Investors who entered the market in January 2020 and stayed invested gained over 17%. Investors who have been invested since 2017 have gained over 77%.
With the economy recovering and stock market returns increasing, let's next look at the aftermath of last year's sharp crash and recovery on inflation and interest rates.
A return to pre-pandemic consumption has spurred a rise in inflation. As inflation increases, interest rates increase. When interest rates go up, bond prices go down. The Fed has made it clear that it intends to keep monetary policy loose until at least 2023 to restore the job market to pre-pandemic levels, so we expect fixed income holdings to continue to act as a stabilizer against volatility but not create significant portfolio income.
Below you'll see negative returns across most fixed income classes in Q1 2021.
Staying focused on our personal investment goals and time horizons helps us ignore the noise of financial headlines and the sometimes erratic movements of stock and bond markets.
Balancing potential risks and rewards is part of what we do for our clients. But the majority of "big wins" we help create comes from tax-efficient savings strategies or avoiding pitfalls you may not have realized were coming up. Even the most perfectly situated portfolio is only half the battle without a clear financial plan and disciplined follow-through.
Please Contact Us to make an appointment with Morgan and/or Kacie if you have questions or would like to discuss further!