Ken's 4th Quarter Recap 2020

January 14, 2021

Hello to all and welcome to another quarterly update.  This is episode 28 by my count!

Outline

-On the Personal side

-Theme for 2021

-Jones Financial Group update

-US Stock Market snapshot & update

-Three things I’m thinking about moving forward

 

On the Personal side:

This being the first Christmas in our new house of course I pulled out all the stops.  I found 4 red bulbs in a cabinet in the garage left from the previous owner, walked outside and replaced the bulbs in the 4 spotlights on front of the house with said red bulbs and voila! Christmas lights were done.  8 minutes tops!

I figure I’ll add a touch each year but I have no ambitions of matching my father-in-law’s neighborhood topping annual display.  He actually couldn’t contain himself and came over and added 16 strands of lights to the tree next to our back patio.  To be fair it looks great!

The holidays themselves were super duper.  We kept to small groups but were able to see almost everybody we normally see and perhaps most importantly we have had no ill effects from our gatherings.  A couple highlights were that Lesley won the “Elf on the Shelf” debate and though I had suggested the girls would be too young for that, sure enough every morning they came down and immediately looked for Mr. Elf.  I admit it was pretty cute.  Aggie stole the show this Christmas with a squeal of delight upon being handed a new doll after unwrapping and patiently waiting for Dad to “de-box” it.

All in all the Logan’s presumably fared better than a lot of people did in 2020 and our thoughts go out to those less fortunate.  We look forward to being able to see more people in person in 2021.  The phrase “It’s always darkest just before the dawn” would seem to apply.

 

Theme for 2021:

I’ve always admired the idea of having one concept to focus on with clients throughout the year but haven’t ever really managed to put it into practice for one reason or another.  Well, in the spirit of New Year’s Resolutions, below is the Theme for 2021 – and I believe this will be one of the 20% of resolutions that actually survive!

Drumroll……….the Theme for 2021 is……..Risk management

There are two areas of focus I’m concentrating on to manage risk this year.  Yes I know I built this up a lot and the though the subjects may not be real page-turners, they are certainly important!


1 – Many of us faced an up close and personal realization of our own mortality or that of a family member this past year.  One of the questions that often comes to mind in the face of that peril is “What would happen to my family if I were no longer here?”  A very sobering thought but this is where Life Insurance needs to be discussed and I’m making it a theme to review coverage with clients this year. 

If you are curious, just drop me a line and I can run a quote amongst our preferred vendors very quickly.  There are many factors that go into a life insurance policy decision, but I can get you a ballpark cost before we were to dig into the details. 

I’m planning a social media campaign on Life Insurance soon, so keep an eye out for that.

 

2 -  Another risk to manage is that of a market decline this year.  Of course a market decline is a risk every year, but it seems like a better time to plan for one just after a significant rally and you’ll see below that stocks have rallied quite a bit the past two years. 

In addition to discussing with my investment clients how they feel about current conditions and adjusting the risk level in their accounts accordingly, I’ll also be talking about Annuities with some folks this year.  This is an idea that is only generally applicable to a select subset of clients, but the general premise is that we can take a portion of your investments and purchase an annuity while markets are high.   

There are many varieties of annuities and pros and cons to each one, but if I feel one could make sense for you I will be showing you how an annuity could benefit you during our meeting(s) this year.

Keep on the lookout for more information on my 2021 Theme.

 

Jones Financial Group Update:

Office – As most of you know by now we moved our office on October 1st from 5027 E Trindle Rd all the way about 0.9 miles down the road to 5275 E Trindle Rd, Suite 201 in Mechanicsburg.  The plan all along has been to stay here at 5275 for 2 years at which time we’ll move back to 5027 into a brand spanking new office.  That timeline is currently still in order and you should see some demolition at 5027 starting this year.  Exciting times.

Staff - Jones Financial Group brought on two new advisors late in 2020 and early in 2021 to continue our ambitions for growth.  While I am not working directly with Jim or Evan as things stand, I wanted to pass that along in case you see their names associated with Jones Financial Group.

Events – I held my 5th annual Holiday Photo Shoot on a chilly and slightly rainy day at the end of October.  We purposefully moved the date up this year to try to get better weather but it still didn’t quite cooperate.  I believe the prior day it was sunny and 70!  Despite that, we got some great shots and I’ll have a post with some pics soon.
No events are currently on the schedule for 2021, but I’m sure I’ll continue with the regular schedule when conditions permit.  I look forward to a time soon when we can gather and have some fun again!

 

4th Quarter Stock Market Snapshot:

Index:                                    Close 9/30/20      Close 12/31/20   4th Qtr 2020 +/-     2020 +/-

Dow Jones Industrial Avg      27,781.70             30,606.48               10.17%            7.25%

S&P 500                                   3,363.00               3,756.07               11.69%            16.26%

NASDAQ                                11,167.51              12,888.28              15.41%            43.64%

 

Also for reference in 2019:

The DJIA index price rose 22.34%

The S&P 500 rose 28.88% and

The NASDAQ rose 35.23%.

Two big years in a row for stocks.

 

The S&P 500 set another all time high on December 31st (and has since set more), but it was decidedly the year of technology stocks as you can see above by the remarkable performance of the NASDAQ index in 2020.  As the world evolved in response to COVID-19, many tech companies reaped the benefits of our forced new reality of physical distancing.

Many folks I talk to can’t understand how stocks were able to perform so well in the face of such bad economical, social and mentally draining news.  I don’t have all the answers but the best answer I can come up with is TINA.  Don’t start belting out “Proud Mary” just yet as I am not referring Tina Turner, but the acronym There Is No Alternative.

With interest rates hovering so low, there really aren’t many places for investors to put their money and realize a reasonable return.  The interest rate that your bank or credit union is paying you in your checking/savings/money market is Exhibit A.

Even if you were fearful of stocks and wanted to pull money out and invest elsewhere, there were not many attractive alternatives, so at the end of the day a lot of investors left their money in stocks in 2020 and that helped to buoy share prices.

(Source – Broadridge Investor Communication Solutions, Inc. - Quarterly Market Review: Jan 2019-Dec 2020.  Copyright 2020, Broadridge Investor Communication Solutions, Inc., All rights reserved.)

Chart reflects price changes, not total return. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. Market indices listed are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.

 

Three things I’m keeping an eye on moving forward:

*Disclaimer - Don’t despair that all three of the things I discuss below are risks.  The intent of this section is to focus on possible headwinds to the extended bull run that stocks have been on.  The contrarian point then is if any or all of these three things fail to materialize, markets could continue to rally.

1 – Vaccine effectiveness

In my opinion the nearest term threat to the market’s continued climb is if the vaccines don’t slow down the spread of the virus.  I think the market has priced in vaccinations and an economy that begins to fire on all cylinders again by the 2nd quarter.  If that does not occur, we may be facing a pause or a pull back until the desired effect occurs.

2 – Inflation

Stimulus has been the name of the game in Washington this year and indeed it appears there is no limit to what the government can or will spend.  We all know that this is unsustainable and at some point the easy supply of money will lead to inflation.  When that begins, and some would argue it already has, then a slow market shift will begin to take shape as investors will be able to get attractive enough interest rates which finally offer an alternative to stocks.  In short, the TINA climate I mention above will no longer apply and demand for stocks will subsequently shrink.  This alone doesn’t necessarily portend a market decline, but it would be a headwind.

3 – Capital Gains Tax rates

This is the big one for me.  The Georgia Senate runoff results provided an avenue for more tax changes to be passed into law.  I’m looking at this taking effect in 2022, but markets will begin to digest that information when the bills are submitted to the House and Senate, perhaps mid-2021.  I’m personally not too concerned about the effect on the markets of a top income tax bracket increase, and though a higher corporate tax rate would surely be a headwind, the potential change I’m watching closest is the Long Term Capital Gains tax rates.  Should these be adjusted heavily upward (higher tax) or eliminated all together and Capital Gains are subsequently taxed as ordinary income I would bet we’d see some increased selling on the markets.

 

Ok I’m at page 4 again and my quarterly attempt to keep this short has again failed.  I’ll go ahead and cut myself off now and thanks for reading this far!

Ken

 

This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions.

LPL Financial and Jones Financial Group are not affiliated with “Proud Mary” or Tina Turner.

(01/21)