How to Make Money in 2021 by … Investing in the Stock Market

While 2020 will be defined as the year of COVID, it was also a year of massive government stimulus and more is on the way. 2020 certainly cements the factuality that it’s impossible to know what’s around the next investment corner. Although controversy persists over lockdowns, personal freedoms, and vaccines in general, I personally can’t wait to once again hear the Southwest Airlines voice over, “You are now free to move about the country.” Getting people healthy and back to work, earning and spending, is the remedy.

What will the road from crisis to recovery look like, and how can investors update their portfolios?

Here are 5 investment concepts to consider as you prepare for the year ahead:

1. Vaccine rollouts create the opportunity for stronger growth which also means stronger returns.

As vaccination distribution ramps up, improving prospects of reigning in the pandemic, the economy can begin to recuperate. Once we can more safely congregate, we can begin to reopen schools, restaurants, and bars, and more typical travel can resume. As COVID risks are mitigated, pent up consumer and business spending is likely to propel GDP growth to about 3% this year, backloaded into the second half of 2021. Don’t forget that this is not a ‘forever lock down.’ Things will turn around eventually.

2.Review the balance of your portfolio.

Because big capitalization digital and technology stock returns have massively outperformed most other industries, these businesses may have outgrown their planned share in many portfolios. “Growth stocks,” in general, may have taken a larger than intended role in your portfolio mix. The new year’s planning cycle and tax season are opportune times to make sure that your portfolio is still aligned with your goals as well as your tolerance for risk.
One more notable aspect of possible imbalances is the shrinking level of bond ownership. Generous equity returns and low bond yields have given us reasons to forget one purpose of fixed income: Providing a shock absorber for stock market declines. But investors will benefit by remembering that during the colossal equity meltdown in early 2020, core bond funds held steady.

~Novel Serialisation: Heavens Fire~

3. Identify post-pandemic winners and losers and invest accordingly.

It is invaluable to have a process to assess investment choices going forward. One effective methodology is to break down industries as either expanding or shrinking, and as having been stimulated or depressed by COVID. This provides four quadrants as a frame of reference. Stimulated and growing “Accelerators,” depressed and shrinking “Disruptables,” expanding but depressed “Pent-Up Demanders,” and stimulated but shrinking “Rebalancers.” Expectations are higher for Accelerator’s such as e-commerce, digital payments, renewable energy, and mobility companies and for Demander’s such as air travel, food service and hotels, than are expectations for Disruptables such as retail and traditional energy.

4. The future is digital so invest in digital and contactless innovations.

We were all forced to adapt new contactless habits in 2020, and some of those habits are likely to endure. Internet TV streaming, online healthcare and shopping, and increased mobility companies have benefited from the pandemic and have the potential to grow further. One trend certain to continue to progress is the movement to digital payments. No-touch, no-cash and no-paper payment systems. Cash is no longer king so investing with an eye cast toward digital breakthroughs in this new era could be a smart decision.

5. Go global when looking for investments that target innovation.

America has long been the primary engine of innovation in the world and likely will be well into the future. But it would be wise for investors to seek opportunities related to innovative companies even if they are not domiciled in the United States. As an example, Asia has quietly become the world leader in digital payments and telemedicine.

The United States and the world in general are moving toward recovery. Investors can best prepare for an unpredictable road ahead by reviewing and rebalancing portfolios, considering investments outside the U.S. and by having a process to evaluate post-COVID winners and losers.

By Mark Clure

About the author

Mark Clure, CFP®, is a principal at Enso Wealth Management. Clure offers the Financial Guide Service (www.truewealthguide.net) to clients in California and points beyond.