Happy New Year to everyone! I hope 2021 is full of health, happiness, and financial success for all of you!
I don’t need to remind you that 2020 was a year full of challenges and difficulties for a great many people. But I would like to recap a few things that I believe we learned financially in 2020, and take a look ahead to a few things we might see in 2021.
When 2020 began, I don’t remember ever having heard the word “Coronavirus”, and in most places in the world, I don’t think too many people other than doctors and scientists did either. But it certainly dominated pretty much all aspects of our lives in 2020 in one way or another. And I believe in many ways it will change the way we look at finance (and many other aspects of life) forever, or at least for a very long time. Here are a few of my 2020 observations:
Cash returns to the throne
With the lockdowns recommended by medical/scientific experts came significant economic and financial hardships. I won’t raise the issue of whether or not they were too severe here (I will never talk about politics on this blog, and the virus certainly became politicized quickly), but its undeniable many people lost their jobs, businesses suffered and/or closed, and the effects were felt financially by most of the population. Because of this, the old phrase “Cash is King” was used more than once during the year, certainly more so that we’ve heard in quite a while.
Building a War Chest
Since the importance of cash came back into the forefront of many people’s thinking, I’ve taken a deeper look at my stance on its proper place in our financial lives. I’ve said for many years that having cash reserves (a friend of mine calls it your War Chest; I’ll borrow that phrase from him!) is a very, very good idea, but very few people have much in the way of an emergency fund.
I’ve also been of the belief that while I think everyone should eventually have a War Chest, it’s more important to eliminate debt and build an investment portfolio first. I’m now adjusting my views on this, and I think you should think about building a War Chest alongside the two things I just mentioned. More to come on this in blog posts in January.
No Time to Market Time
I’ve always been opposed to “Market Timing”, and 2020 has strengthened my belief that it’s a foolhardy strategy. The market drop in early spring was no surprise as the uncertainty surrounding the severity of Covid, as well as the virus itself, ran rampant. But who could have realistically seen the market rebounding to record levels with the virus still out of control? I will be further defining Market Timing as well as reinforcing my stance against predicting the unpredictable throughout posts in January.
Now for a few thoughts on 2021 and beyond. I’m not going to try to predict the unpredictable as I just said, so please don’t take any of the remarks below as “predictions”! (I will go out on a limb though and predict neither the Jacksonville Jaguars nor Detroit Lions will win the Super Bowl in 2021!). My comments below are more in the line of things to look at in the upcoming year, or even years:
The new new normal?
So much in the world of economics and finances hinges on the availability, distribution, and effectiveness of the Covid vaccines. The sooner the vaccines become widely distributed, the sooner the economy (and society) might be able to regain some sense of normalcy. Though to borrow the greatly overused phrase coined by Mohamed El-Erian in 2008, then of bond giant PIMCO, we are going to have to adapt to a new normal. What exactly that will look like might become more clear as the pandemic becomes more under control.
Travel and hospitality
The travel and hospitality industry is one that will particularly be subjected to a “new normal”. It’s no secret that restaurants, hotels, and airlines have been hit particularly hard during the pandemic, though some restaurants have survived by sharp increases in take-out/delivery traffic, and airlines appear to have gotten a boost from much larger-than-expected travel volumes around the holidays in November and December.
Which restaurants/hotels/airlines survive the pandemic is still up in the air, but there certainly appears to be pent-up demand for travel (and also likely dining-in at restaurants) that could significantly manifest itself as the pandemic becomes under control. Industry experts expect lower airfares and hotel rates initially to lure travellers back, but beware of higher prices later in the year as capacity (in both hotel space and numbers of flights available, particularly in international travel) decreases. We could be looking at much higher hotel rates and airfares in the very near future.
I’m not saying this to tell you you should be buying (or selling) airlines/hotel stocks or industry ETFs (I am absolutely not making either recommendation), but rather pointing out something that might not only effect the overall economy in the near future, but also your wallet!
Watch for bursting bubbles
Be wary of asset bubbles. What is a bubble? In finance/economics, it’s an inflation in price levels that grows rapidly, perhaps beyond reasonability. One such bubble might be Bitcoin. The price of Bitcoin rose more rapidly than just about anything I ever seen (from $3 in 2010 to nearly $20,000 in 2017), only to retreat to half its high point and stay dormant for several years through widespread scepticism. But it recently blew past its old high on the way to over $30,000!
I get nervous when I see the price of anything go up that far that fast without a very good explanation. I’ll be talking a lot more about asset bubbles as well as a post or 2 on Bitcoin in January.
How our “new new normal” will look, as I’ve said, is still a bit hazy. I hope 2021 is a much better year for many more people than 2020 was, but don’t expect uncertainty or market volatility to go away anytime soon. Even after we get the pandemic under control, our world could look quite a bit different.
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