In March of 2020, COVID-19 became a wide-spread news story that sent the stock market down by more than 30% in what most investors thought was the beginning of a disastrous year. But it managed not only to rebound but set new highs.
As we begin 2021, the stock market continues to set new highs. President Trump ushered in one of the strongest economies in history until COVID resulted in much of the economy shut down, causing massive short-term unemployment followed by a quickening but not full economic recovery. With the Biden administration and Democrats in control of the House and Senate, what can we expect for our economy and the stock market? And what should you do to supercharge your 401k and retirement plans?
President Biden is proposing a $1.9 trillion COVID-related stimulus package that includes $1,400 checks to individuals. Ultimately I expect we will see billions of spending that should be the booster shot our economy needs, and investors will embrace causing higher stock prices. As further support for a strong stock market this year, historical returns for the first year of a new presidency are 10%-plus.
Perhaps the most significant case to be made for a strong stock market this year is continued low-interest rates. The 10-year Treasury bond is yielding about 1%, and the 30-year treasury bond under 2%. My guess is that we will see interest rates and inflation begin to rise this year…but very slowly. Government spending, increased regulation, and raising the minimum wage tend to be inflationary. Low interest rates and rising inflation should drive investors to seek higher returns in the stock market.
What you should do now with your 401k
- Review your portfolio, paying particular attention to your allocation between stocks and bonds.
- If you do not plan to touch this money for ten years or more, consider increasing your stock allocation to 80% or more.
- Because of expected domestic spending, consider out-weighting U.S. stocks versus international stocks.
- Review your portfolio for rebalancing at least annually.
Please remember: The stock market contains inherent risks that are unpredictable. Every situation is different; be sure to consult your financial advisor before acting on any comments in this article.
For weekly insights, follow The Welch Group every Tuesday morning on WBRC Fox 6 for the money Tuesday segment.
FOX 6 TALKING POINTS
Supercharge Your 401k for 2021
- Determine your current allocation of stocks vs. bonds.
- Allocate 80% or more to stocks (10-year+ time horizon).
- Emphasize domestic over international stocks.
- Review/rebalance at least annually.
Stewart H. Welch, III, CFP, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget.
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