2020 is a year the stock market defied reason, despite a global pandemic and the economic turmoil that ensued the markets rallied.
As investors look ahead to an uncertain year, one thing stock analysts appear to be certain about is that we’re in for more market volatility in 2021.
“I think that’s still the watch word for ‘21,” Dave Nadig, CIO and director of research at ETF Trends tells Yahoo Finance Live. “I think there’s still the opportunity for a lot of volatility. There’s still a lot of unknowns coming into ‘21, and I think sticking to a plan is probably the most important thing.”
Nadig says investors who stuck to their knitting this year were ultimately rewarded.
“Probably the biggest opportunity investors had to mess up was in March and April. If you were a normal investor with a balanced portfolio, not just barbelling out into Tesla’s stock, when you came to the end of March and you had to rebalance, it was a bit of a gut check because you had to be in the position to sell your bond funds and buy equities precisely when that was really uncomfortable. And if you did it — you absolutely crushed it.”
That’s because since hitting their lows in late March, stocks have come roaring back with a vengeance. The S&P 500 (GSPC) is up nearly 65%, the Dow Jones Industrial Average (DJI) has climbed 62% and the Nasdaq Composite (IXIC) is up a mind-numbing 86%.
“I still think we’re in a bit of a K-shaped recovery here and the economy is going to come out of this fundamentally different, and I don’t think it’s irrational to think about your portfolio differently as well,” says Nadig. “That doesn’t necessarily mean dumping all of your energy stocks and never owning a transport company again, but I think it does mean rethinking whether or not your core index exposure is what you thought it was.”
Nadig expects 2021 to be another big year for Exchange Traded Funds. Investors have poured roughly half a trillion dollars into ETF’s this year, easily beating the industry record of $452 billion set in 2017.
“We’ve had record flows into active ETFs, record flows into ESG ETFs and fixed-income ETFs,” says Nadig.
“Don’t go chasing the latest hot performing thing or the latest take on how the economy’s going to respond to a particular piece of legislation. Focus on your core objectives for the long term, and I think you will do well,” he adds.
Alexis Christoforous is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AlexisTVNews.