What surprises will 2021 bring for South Florida investors? | Opinion

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What surprises will 2021 bring for South Florida investors? | Opinion

Andrew Menachem

For South Florida investors, the past year has been full of surprises. Last January, the U.S. economy was rolling along, corporate profits were high and unemployment was low. Then the COVID-19 pandemic turned the world upside down.

Many sectors of the economy shut down, while some technology companies, supermarkets and consumer goods retailers saw their sales take off. Meanwhile, businesses of all sizes shifted to a work-from-home model, whenever possible.

Now, a new administration and Congress will take office in January, with hopes that a COVID vaccine will be widely available in the coming months. While many businesses continue to struggle, stock market indexes posted new highs in December, anticipating a better year.

Strategies to consider

With the arrival of a New Year, investors have a timely opportunity to review their portfolios and discuss strategies with their financial advisors. That might mean reassessing your tolerance for risk, striving for higher potential returns or simply rebalancing your current holdings.

For many investors, the impact of the COVID outbreak brought a stronger appreciation of the need to address risk. For many South Floridians, have a cash reserve as a rainy day fund meant the difference between hardship and making it through a difficult time.

On the investment side, COVID was a powerful reminder that markets can go down, as well as up. Although the U.S. stock market did not plummet, as might have been the case, risk management will continue to be a top priority for many investors in 2021.

If you are looking for new stock market opportunities, here are several sectors to discuss with your advisor:

Healthcare. From pharmaceutical companies to regional health systems, insurers and technology companies, I believe this sector will see strong demand for products and services. Investors may need to move quickly to capitalize on promising companies, though, as this sector is being watched closely around the world.

Technology. In 2020, technology was the shining star of the stock market, with gains that outpaced other industries. But the big question is whether the big leaders can sustain those gains in the coming year. If the tech valuations seem high, it may be time to take shift some of your funds to different sectors.

Alternative energy. The Biden administration intends to place a greater emphasis on renewables and sustainable energy sources. However, decreased worldwide demand for fossil fuels may put downward pressure on pricing in the months ahead.

Travel and hospitality. This sector came to a standstill in 2020 and has a long way to go for a full recovery. Nevertheless, if you want to invest in well-managed Fortune 500 companies at bargain prices and are willing to wait, this may be a sector to explore.

Other trends

Looking beyond Wall Street, investors might also consider the prospects for global equities. For instance, China, Japan, Korea and the Southeast Asian economies appear to be well positioned for growth in the coming year.

While Europe and the Americas are still struggling to gain traction in the time of COVID, many of these nations are gearing up manufacturing production. For investors, that means looking at investments that focus on China or the Pacific rim. International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. You should review these factors with your financial advisor.

However, I believe the outlook is not particularly promising to add to global bond markets. Bonds will remain an important component in a diversified portfolio, and you should probably hold on to your current bond holdings that most likely pay higher yields than current new issues. But the need to provide some type of financial stimulus to help business are likely to keep interest rates at historically low levels. This could create cash flow problems for investors who rely on bond interest for household income.

On the other hand, inflation is not likely to be a problem in 2021, even though the high level of government debt in the U.S. and other developed countries make this a concern for the future.

Back to the basics

In searching for the right market strategies for 2021, don’t lose sight of the fundamental consideration for long-term investing. After determining your personal goals and assessing your tolerance for risk, you should prepare a financial plan with your advisor.

This will be your roadmap for the next few years. Even if you find yourself having to take a detour, having a plan will help you stay focused on your goals, rather than responding emotionally to changes in the market. In any case, don’t try to time the market. No one can predict the highs or lows of an individual stock, industrial sector or overall performance.

The past year also shows the importance of constructing a diversified portfolio of stocks, bonds, alternative assets and cash. While diversification does not guarantee a profit or protect against loss, it can help mitigate the risk of putting all your eggs in one basket — if the bottom breaks, you could be left nothing but the yolks on the pavement.

So, stick with the basics as you consider investment strategies for 2021. But regardless of your plans, be prepared for the unexpected. After all, who knows what surprises the New Year has in store!

Andrew Menachem, CIMA®, is a wealth adviser at The Menachem Group at Morgan Stanley in Aventura. Views expressed are those of the author, not necessarily Morgan Stanley, and are not a solicitation to buy or sell any security. The strategies and/or investments referenced may not be appropriate for all investors. Follow Menachem on Twitter @AMenachemMS.

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