How Did This Month Affect Those Who Stayed Invested?
Sarwa is your online financial advisor. We help you put your money to work in international markets so you can reach your life goals. We’ve launched a monthly series of market snacks to keep those of you who are interested up-to-date with market events and outlooks.
The November stretch was a great one for those invested in the markets, with stocks getting a boost early on from the US presidential election results which took center stage. Mr. Joe Biden was elected the 46th president of the United States and fulfilled his decades-long ambition in his third bid for the White House. The result also provided a history-making moment for Biden’s running mate, Senator Kamala Harris, who will become the first woman to serve as vice president.
After the initial surge in equities from the election outcome, markets jumped to even more substantial gains amidst hopes that a COVID-19 vaccine is close to being approved. This came after reports that Pfizer and BioNTech have a vaccine that has proven to be more than 90% effective against coronavirus in late-stage clinical trials.
Last month, the S&P 500 index, NASDAQ and Dow Jones Industrial Average sported respective gains of 10.8%, 11.8% and 11.8%. In fact, each of these indices all reached record highs with the Dow 30 surpassing 30,000 for the first time ever.
Many big European bank stocks also jumped off the back of the positive vaccine trial results: French and Spanish bank stocks secured the strongest growth whilst other high returns came from the UK and Netherlands. Alongside other financial markets around the world, the FTSE 100 index performed strongly surging by 12.4% – its best month since 1989!
YTD Performance of FTSE 100
Advice for the Future of Investors
This experience may serve as a lesson to anyone who was considering, or worse, cashed out their investments in October because they believed that the markets would continue to move lower – either due to the US elections or anything else. Was the market uncertain? Was there potential for downside risk? Yes. But this is always the case. We all know that our accounts go up and down each day. It’s just that other times, the market swings are much more volatile than usual.
One of the issues with trying to time the market is that, unlike a flash flood, investors don’t get an emergency alert on their phone indicating when it’s time to take cover or when it’s safe to return. We only get to know this information in hindsight and the notion of moving into cash until the market recovers only ignores another very real but less visible danger: missing out on the recovery.
Those that let their emotions get the better of them and make ill-timed decisions will only wreak havoc on their long-term returns. This is why the expert advice is typically to remain invested through the market’s dips.
Similarly, with the aforementioned major indices reaching record highs in November, we saw some modest profit taking from other investors after these gains. Whilst we understand that people get excited when they’re in the green and it’s tempting to withdraw to make those profits tangible so that you can go away and enjoy them, the reality is that this is also not a good strategy for long-term growth. Reinvesting the small profit that you see today and allowing it to compound overtime could translate to a significant amount more money in the future. So, leave your money alone and look after your future self. Read more on this here: When and How Much Can You Withdraw from Your Investment Portfolio .
Furthermore, investors may be interested in how the Black Friday shopping weekend will affect the tech and retail stocks. For example, Apple (AAPL) may receive a favourable boost if sales of the new iPhone 12 are positive. Quarterly results from Zoom Video Communications (ZM) and CrowdStrike (CRWD) may also be watched as these are two companies that have performed well during the pandemic. The question now is how would a possible COVID-19 vaccination impact these companies and their stocks which have benefited from individuals working from home? With that said, rather than trading in single stocks, bonds or anything else, investors should ensure that they are invested in a well-diversified portfolio. This means diversifying across many different countries, asset classes, and companies because, when it comes to investing, there is no such thing as a sure thing!
Invest with Sarwa
At Sarwa we are committed to helping people achieve their financial goals. If you’re wondering what all of this means for you and your money, then reach out to one of our advisors here who will be on-hand to answer all of your investment and financial planning questions.
Stay calm. Stay invested. And Stay safe.