And good riddance to bad rubbish. We’re excited to start the new year and hope it is boring, calm, and completely precedented.
While we won’t have a full analysis of the year until later this month, we have some big-picture data. Both the S&P 500 and the Dow Jones Industrial Average started the year strong, only to fall by just over a third in March. Over the next nine months, the market not only recovered, it went on to set new record highs.
In fact, the S&P is up over 14% in the last two months alone. That is the best year-end rally since World War II. And it gives us hope for a strong 2021. The last five times that the market finished up over 10% in the final two months of the year, the following year was also a positive year in the market.
As the vaccine rolls out and things hopefully begin to return to normal, we expect a strong increase in consumer spending, especially on travel and hospitality. And probably sales of pants as we return to offices. Consumer spending makes up about 70% of the US economy, so this spending should further increase economic growth.
As you look back at 2020 and make your resolutions for 2021, consider a financial fast as part of your self-improvement work. A financial fast is when you only spend required money for set period of time, usually a month. If that seems extreme, try a week and see how it goes. You can pay your bills, buy groceries and gas, but that’s it. No eating out, no on-line shopping. If you don’t have to have it for work or school, don’t buy it.
Part of this is a mental reset, helping you see where you’re spending money. So much of what we spend is unconscious, because it’s not real money that we see and touch. It’s a piece of plastic or just a stream of electrons. You can pay with a wave of your phone or watch. And that $3, $8, $20 purchase really isn’t that much. It’s when you add up all the little purchases that it becomes significant.
I’m never going to be the advisor who tells people to stop buying coffee out. You manage cash flow by paying all your bills, and then you can spend whatever is left each pay period, on whatever you want. The trick is not to stop buying a cup of coffee if that’s a thing you enjoy. The trick is to make savings for your goals part of your bills. And I mean all goals, not just retirement. If you want to hep your kids with college, make a monthly contribution to their 529 part of your bills. If you want to buy a new car or boat, make a monthly contribution to a savings account part of your bills. Same for travel, a new home – any goal. Whatever is left becomes fully discretionary. And if you really want a particular goal, you begin to make conscious choices. Do I want to buy this item or do that thing, or do I want to travel, or buy a boat? What you would have spent on that discretionary purchase goes into savings.
The financial fast is an opportunity for a reset, and a time to see if you have aligned your spending habits with your values and goals.
We are offering a deep dive into what happened in 2020 and what we expect in 2021 later this month. Our signature event, Women, Wine & Wisdom, becomes a co-ed economic update for the month of January. You can register for that event, and find much more on our website at covingtonalsina.com, or visit our Facebook page to learn more.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.