Why Now Is a Good Time To Reevaluate Your Investments
There’s never a bad time to reevaluate your investments, but now is looking like a particularly good time to take another look. Even if you just did an annual review at the end of December, much has changed since then. Various economic, political and market-specific changes have occurred, each of which could affect your portfolio. In consultation with your financial advisor, take a look at each of these factors to see if they apply to your portfolio and if any changes need to be made based on your investment objectives and risk tolerance.
There’s a New President
On Jan. 20, the political landscape changed dramatically. With the installation of Joe Biden as president, many of the economic policies under the previous administration were reversed, meaning the investments that worked over the past four years may fall out of favor. Specifically, the Biden administration is prioritizing clean energy, infrastructure and the successful rollout of the COVID-19 vaccines, among other priorities. Speak with your financial advisor to see if your portfolio should include these types of investments, as they’re likely to be prioritized for years to come.
COVID-19 Cases Are Decreasing
Thus far, the rollout of the COVID-19 vaccines, while slower than everyone wants, has been successful. Cases in the U.S. are trending down dramatically, and some states, such as Texas, have already announced that they are fully reopening with no mask mandates. Biden himself has said the country will have enough vaccine doses for every American by the end of May.
If the vaccines do indeed roll out successfully, the so-called “reopening trade” will likely continue to work. Under this scenario, businesses that have been all but shut down by the virus should recover dramatically. This includes restaurants, casinos, cruise lines, hotels and other companies in the travel and leisure and consumer discretionary categories.
Tech May Be in a Bubble
If you’ve owned tech stocks the last few years, congratulations! Many of the most well-known companies in that industry, from Apple to Microsoft, have done amazingly well. Some high-flyers, like Tesla, even returned over 700% in 2020. But if you’re heavy in tech stocks, you might want to consider taking some profits and/or reallocating a portion of your portfolio. Information technology alone now makes up a high 27.4% of the S&P 500 Index, with Apple and Microsoft comprising a whopping 11.5% of the index all by themselves.
By some measures, tech stock valuations are getting out of control. Well-regarded financial publication Barron’s has gone so far as to say that “tech valuations are getting scary.” Although there are certainly still some tailwinds for tech, including record-low interest rates, trillions of dollars of stimulus money from the government and a receding global pandemic, trees don’t grow straight to the sky. At some point, there will be a reckoning in tech. No one can predict when this will be, but while you still have a chance, it makes sense to consult with a professional and see if you aren’t currently taking on outsized risk in your portfolio.
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Inflation and Rising Interest Rates
The various stimulus plans enacted under the Trump and Biden administrations have been lifesavers for many Americans, from enhanced unemployment benefits and child tax credits to a series of direct stimulus checks. By mid- to late March, another $1.9 trillion in stimulus is likely to be added to the economy, bringing another round of relief to struggling Americans. At some point, however, there’s likely to be an economic consequence of this deluge of money coming into the economy, in the form of inflation and/or rising interest rates.
As these types of changes can hurt asset values, it’s a good idea to review your portfolio with this type of economic backdrop in mind. Of course, economic expansion is generally good for asset values, and the Fed has announced it intends to keep interest rates low until at least 2023. However, at some point rising rates and inflation are likely to hit the market, and it pays to look ahead and position yourself for any consequences to your portfolio.
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