As we approach the final days of 2020 and look back, it has been a year of many tumultuous twists and turns. Our Investment Policy Committee has coordinated many proactive moves over the preceding months focused on our objective of producing a more consistent rate of return over full economic cycles. Now with the advantage of hindsight, we can see the many challenges and opportunities of the year. Most importantly, together we made it through!
Looking back at 2020
In November 2019, with our focus on the later stages of the economic cycle, we commented, “…the stock markets may be getting ahead of themselves.” And as such we, “…reduced risk by trimming exposure to riskier, lower rated and longer maturity bonds”. We also dramatically shifted stock focus for the first time in several years toward, “…companies with cleaner balance sheets, stronger earnings and higher dividends.”
As we moved into 2020 , we continued to hold cash. We commented, “…with more volatility and greater potential for market extremes, our focus for 2020 will be to “participate but defend.” We focused on consumer spending as it is about 70% of our economy: “Without a strong consumer, there are plenty of items to fret about.”
On February 12, the Dow Jones Industrial Average (DJIA), not yet focused on Covid, closed over 29,500. By mid-March, investment markets were firmly in a downtrend and we agreed with the logic for the decline; “…the consumer is losing the ability to control whether or not to spend (and keep the economy going.) Entire countries are now closed for businesses.” However, looking forward, “…the investment markets are fairly efficient at positioning for the future. The forecast for negative growth (recession) often means negative returns.” The DJIA continued its decline to an intraday low of just over 18,000 on March 22nd, a decline of more than 37%. If you’re up for it, the web now has a week-by-week overview of the “Coronavirus Crash of 2020.”
After promptly adjusting lower for a recession, the markets around the world received stimulus from the Federal Reserve, Central Banks and Legislative bodies in the form of lower interest rates and massive Government spending. “During the week of March 23, we fully invested available cash for retirement accounts with a longer-term focus.” And, “in April and May, for taxable accounts, we were very active with tax loss harvesting.”
As the focus turned to the elections we again stepped back and kept an eye on the economic cycle rather than the day-to-day drumbeat of the politicians and the media. In September, courtesy of Hartford Funds, we posted a graphic, of the S&P 500 and Presidential Terms we thought provided a better perspective and longer-term view.
Positioning for the future
As the year has continued to progress, the markets have remained optimistically focused on a post Covid world. There are still many uncertainties we face, yet among them is the realization that we, as human beings, are a resilient species and full of ingenuity! The world came together to focus on vaccine development at an incredible pace, and the adoption of technology as the means of communication and commerce have shifted the dynamic of our world going forward. As this was happening, the DJIA has rebounded to over 30,000, a new all time high, as lower interest rates and government spending helped to make up for the lack of consumer ability during lockdown.
Many of us are exhausted from the roller coaster of 2020; and rightly so! From the vantagepoint of a multigenerational Family CFO, we have seen firsthand the core values and beliefs of those we work with haven’t changed much. However, from a financial standpoint, many families ‘financial goals and objectives’ are changing. As we meet in the new year, we look forward to talking with you about any changes you may be wanting to make.
In the short-term, it is again likely the markets are ahead of the economy and as such we believe there will be additional volatility. However, when extending the view to the mid-range, we believe we are through the worst for the markets and the next economic cycle is underway. In the months to come expect us to slowly increase risk and index exposure for investment allocations to target future returns. We will also continue to focus on the logic of the economic and business cycles; ignoring the short-term noise.
If you have specific questions about our strategy, please let us know and we will make sure to review details at our next meeting. And while we don’t recommend fixating on short term market fluctuations, if you would like to check specific performance of your investments across all your accounts, our Buttonwood Portal is available 24/7. Or you can contact us and we can provide reports specific to your questions and financial life.
Thank you for your continued trust and allowing us to serve as your Family CFO.