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After a volatile year in financial markets, a long-term, goals-based approach to financial planning remains a strong strategy. Watch these six market trends. It could benefit your financial future.

Personal finance

6 Market Trends That Could Alter Your Path to Financial Security

  • Clayton Bland
  • Christopher Dhanraj
  • 3/16/2021

Key insights

  • Trillions of dollars in government stimulus saved markets from a liquidity crisis; sitting in cash and fixed-income assets generates a negative real return.
  • Government support will likely continue in 2021, which presents opportunities to put your cash to work.
  • Recent short-term market volatility and political transition exemplify the value of a long-term investment plan in all economic cycles.

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For investors, 2020 was a rollercoaster of epic proportions. Between a pandemic, a market crash, a rebound to record highs, and massive government intervention, many investors felt angst as their portfolios hung in the balance. Was your financial plan able to weather the unpredictable storm? Are you confident that it can carry you through whatever the future holds?

With the changes brought by 2020, it’s more important now than ever before to revisit your individual financial plan as you take a look at what’s in store for 2021 and beyond. Watch these six market trends — they could transform your financial plan, and your financial future.

1. Interest rates are expected to remain low for many years, supporting real estate markets

As a result of stimulus, the financial system is currently flush with cash. Interest rates are expected to hover near 0% for the next 3 – 5 years. If this holds, it means fixed-income investments such as bonds generate a negative real return when adjusted for inflation.

What does this mean for you?

Stay invested. Stocks and real estate investments typically perform well in periods with low interest rates, as investors seeking yield pile into assets.

2. The post-COVID recovery is likely to support strong company earnings as the economy reopens

Across the board, companies are making more money as the economy reopens even hard-hit industries such as hospitality and health care are doing well. Higher earnings can create a new sense of optimism for investors. This positivity supports the asset prices we are seeing now.

What does this mean for you?

Let the recovery work for you. Markets seem to be forward looking. Many organizations are likely to have a banner year in 2021, which bodes well for equity investors. Talk to your advisor about whether adding equity exposure to your portfolio is right for you.

3. Investors are taking notice of the recovery and putting cash to work

When the stock market crashed in March 2020 as COVID took center stage, more than $1 trillion left the stock market – yet, only a small portion of it has returned as the markets recovered. Investors have billions in cash sitting on the sidelines — and with no yield on cash, investors are likely to reinvest, boosting market values.

What does this mean for you?

It’s not too late to invest. Make sure your portfolios are robust and aligned with your personal goals. Between investors who panicked and the Fed’s cash infusion, there’s a lot of money that needs to find a home, and that creates optimism for the market.

4. Government-driven policy support is expected to continue

To maintain economic stability during COVID-19, the Fed and other central banks worked together on monetary policy, infusing trillions into the world economy. Democrats and Republicans alike have a pro-stimulus track record. The combination of these two forces provide a stable backdrop for you to stick with your long-term financial and investment plan.

What does this mean for you?

Focus on the long term. Try not to worry about the politics of it all. It’s well known that the average investor — driven by emotion — buys high and sells low. Yet, those who stay invested see, on average, a 6 – 7% return. A hands-on approach to investment with a long-term outlook can help you preserve and grow wealth.

5. A goals-oriented approach is beneficial when creating robust portfolios

Historically, individual investors took an asset-class approach — bonds for yield, equities for growth — but today’s market is more dynamic. Speculating in trendy stocks has recently been all the rage, though few grasp the risk management and tax (capital gains) implications of their trading strategies.

What does this mean for you?

Invest for the future and avoid trading the noise. Fads come and go, whereas robust investment portfolios tailored to your goals are proven to stand the test of time. The path to your financial goals is an individual one, and one that hinges on deep knowledge of the interplay between investments and tax. After all, what good is a lucrative short-term investment if you don’t plan for the requisite increased tax burden?

6. Market uncertainty and potential tax legislation changes create impactful planning opportunities

Between a massive crash and meteoric rise, 2020 was the year of volatility. More legislative change is bound to come as the Biden administration settles in, from both an estate- and tax-planning perspective. While much is up in the air in 2021, policy changes present intriguing wealth-planning opportunities for thoughtful, forward-looking investors.

What does this mean for you?

Now is the time for grit. With financial markets at record highs and tax reform on the horizon, risk management and personal grit are key differentiators for investors in 2021 and beyond. Be forward-looking, ask if your personal plan still support your goals, and lean on your financial guides to help you stay on track.

Get more: Dig deeper on these 6 market trends during our April 21 webinar

How we can help

For more than a century, CLA has helped clients navigate financial market conditions in the context of their personal goals. As the world shifts, it’s more important than ever to integrate your tax and wealthplanning in order to prevent tax losses from eroding investment gains, and, to affirm that your plan still aligns to your goals. When approached holistically and flexibly, your overall plan can help you navigate volatile markets and help create confidence, whatever the current climate.

Our seamless, comprehensive approach to wealth management is designed to do just that, integrating tax planning, estate planning, and investment advisory offerings tailored to your personal needs.

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