What to do with your stock market investments in 2021

2020 has been a roller coaster year for the stock market investors. The leading US stock market indexes saw a spectacular rebound from the lows of March 2020 and the momentum seems to be going strong even in 2021. All this in a year when the global economy caught itself trapped in the Coronavirus pandemic and the US held its presidential elections to elect its 46th president.

Over the last 12 months, around the same time when the world came face to face with Covid-19, the S&P 500 is up by nearly 16 per cent, the Nasdaq 100 has gained nearly 40 per cent, while the Dow 30 is up by almost 9 per cent. The most striking theme that emerged during the year was technology and digital stocks and among the frontline stocks, the FAANG pack had a spectacular run.

But, will 2021 continue to reward the shareholders and how should investors approach the stock market this year? Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank in his report published on ML website suggests a few things that investors may consider doing in 2021.

The period immediately following an election or other major event is a good time for a conversation with your advisor, Hyzy believes. Investors who had wondered how a blue sweep might affect their taxes, estate plans or investments in industries such as health care or energy may want to discuss how the picture changes.

Still, it’s important to avoid sudden decisions based on the outcome and to consider your portfolio in the context of the broader economy and your personal goals. “Housing, for example, could continue to be an engine of growth,” Hyzy says. The technology sector has surged amid an upswing in remote working, digital health care, e-entertainment and online buying. And corporate earnings in 2020 have outpaced expectations. These factors, combined with the likelihood of ongoing low interest rates, currently favor stocks over bonds, Hyzy says.

Stocks of large US companies have offered an attractive combination of high-quality, growth potential and yields from dividends. In the year ahead, investors may also find opportunities with stocks of smaller companies, which have offered higher cyclical growth potential and more attractive prices, Hyzy notes. With China’s economic activity approaching pre-pandemic levels and the dollar weakening, the outlook for stocks of emerging-market countries has improved, Hyzy believes, and with low interest rates in place, bonds should remain an important tool for diversifying a portfolio.

Despite expected growth in 2021, the ride won’t always be smooth, economically or politically. In the days ahead, review your portfolio regularly with your advisor and rebalance as needed, especially following periods of volatility.

What to do

You can form a core portfolio of US stocks comprising of large-cap and popular companies that have a large global presence. Also, instead of picking stocks individually, you may consider investing through ETFs. Some ETFs that can give exposure to the US stock market are – SPDR S&P 500 ETF which tracks the S&P 500 index and Invesco QQQ which tracks the Nasdaq 100 Index. Finally, keep a long-term horizon with the objective of global diversification to avoid exposing all your money to domestic stocks.