The Biggest Lessons to Learn from 2020

It’s good to see 2020 in the rearview mirror, but investors can learn a lot from this tumultuous year. Here are some of the biggest takeaways. 

Fearless Forecast from 2020 

For the past three decades, Nelson Financial Planning has offered an annual “Fearless Forecast.” This tongue-in-cheek exercise goes out on the proverbial limb to predict the market’s future. 

As we started 2020: 

• Unemployment was at 3.5 percent. 
• Economic growth was humming along at 2 to 3 percent. 
• The Dow closed out 2019 at 28,538 points. (Our Fearless Forecast for 2019 predicted closing at 28,400 points.) 

Here’s how things unfolded: 

• Unemployment rose to 7.9 percent. 
• The economy shrank by 3.6 percent. 
• The Dow closed out 2020 at just over 30,600. (Our Fearless Forecast for 2020 predicted closing at 31,600 points.) 

Key Takeaways from 2020 

Investors can apply four big things from 2020 going forward: 

• Markets don’t perfectly reflect the economy. Fear over the pandemic caused the market to plummet about 35 percent in March 2020. The lockdowns obviously had a dramatic economic impact, and the market reflected that in this instance. However, remember that the market indicates what the future may hold rather than serving as a template for what’s happening today. 
• It pays not to time the market. If you pulled out at the beginning of the pandemic, you missed a tremendous opportunity. After all, the market rose 15 or 16 percent from its low point in March until closing in December. 
• Forecasts are just forecasts. No one can predict the future. That’s why forecasters constantly change their predictions. Ignore them as best you can. 
• Embrace new trends, but balance your portfolio. Big tech companies drove around 30 percent of the market performance in 2020. Moreover, technology dominated our personal lives. Remember how Zoom became a household name when everyone shifted to remote work environments and videoconferencing? Big drivers are important, but don’t neglect the opportunity to diversify your investments. Even consider those from overseas as international markets recover faster than the US. 

Fearless Forecast for 2021 

Here are our predictions for this year: 

• We estimate economic growth of 3 percent, maybe a little higher. We expect 2021 to be a comeback year, but we believe the money injected into the market may have stolen some of the recovery we might have otherwise seen in 2021. 
• Low interest rates are here to stay. The Federal Reserve is doing everything it can to hold interest rates near 0 percent until 2023. 
• We predict the Dow will close out 2021 at 32,250, or 5 to 6 percent higher than it closed in 2020. 

If you’re ready to accumulate more wealth in 2021 and beyond, turn to Nelson Financial Planning for help. We have over 35 years of financial planning experience to provide superior investment results and peace of mind for the future through a successful and cost-effective financial plan. Call 407-629-6477 or schedule a free initial consultation online.