Jan 4, 2021
Top 2021 Themes:New Year Special Report
Welcome, Welcome 2021!!! Turning the calendar never felt so good. And with it comes the usual wave of predictions, no matter how badly those predictions turned out for 2020. Rather than prognosticate,
we think it’s important to highlight top financial trends for advisors to be aware of as 2021 dawns.
And because we’re Horizon Investments, we’re using our goals-based investing framework of Gain, Protect and Spend to highlight them.
Mirror, mirror on the wall, who’s the richest of them all? If Americans want to see who’s getting richer, just look in the mirror.
The two biggest assets households own - homes and stocks - are going gangbusters and driving a historic back-to-back gain in net worth.
The two-quarter rate of change is nearly 11% for the second and third quarters. The last time it was over 10% was the post-war America of the 1950s! (See the lower panel in the chart below.)
The Federal Reserve’s latest report says home values are growing faster than the addition of new mortgage debt, meaning homeownership is immediately rewarding despite taking out a loan.
That trend is helped greatly by mortgage rates sinking to record lows, which is fueling bidding wars in some parts of the country.
With both home prices and the stock market galloping higher in the fourth quarter of 2020 -- and with predictions for more gains in 2021
-- it’s a fairly safe assumption that Americans’ net worth will keep ballooning. And they’ll likely need professional help to manage that newfound wealth.
TINA Is Calling. Protecting wealth in 2020 was an arduous task. As quickly as fear gripped investors in March, it dissipated in April and beyond.
Seeking a haven in bonds was difficult if an investor tried to time that market. The quick-twitch reversal was, of course,
driven by a flood of money: trillions for markets from the Federal Reserve’s quantitative easing, and trillions for average Americans as Congress sought to safeguard household financial health.
The result of those policies is that TINA (There Is No Alternative to stocks) was once again reinforced in investors’ psyche. Consensus believes the TINA phenomenon will continue in 2021, and we would agree.
While it is worth thinking about how the Fed might react to inflation running hot - and whether that reaction will sink stocks
- we think their new policy framework and their goal of fostering a broad and robust recovery will lead the central bank to stick with low interest rates. And that will likely keep a persistent bid in equities.
The key question, then, is how can investors best protect wealth and manage the risks that come with owning stocks?
Picking up pennies in front of a steamroller. Sticking with the idea of interest rates being lower for longer, advisors should pay attention to inflation-adjusted, or real, yields on fixed-income investments.
Picking up proverbial pennies in bonds in front of a potentially crushing inflation steamroller highlights the longevity risk that comes with relying on fixed income for retirees.
Our recent Big Number report showed investment grade (IG) corporate bonds are the latest asset to succumb to a negative real yield.
A retiree’s spending power is losing ground with inflation eating up the yield on IG bonds. Goals-based financial planning would suggest alternative income ideas are needed.
Horizon Investments designed Real Spend® to help make sure retirees don’t outlive their money.
Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt
to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting
any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does
not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual
clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is
suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. It is not
possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is
based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such.
Opinions expressed herein are our opinions as of the date of this document. We do not intend to and will not endeavor to
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