Stock market watchers are endlessly looking to find what is the next investment trend.
In 2020, the coronavirus pandemic further spurred the desire to gauge trends while the world was forced to settle into a “new normal.”
Let’s be honest: trend spotting in the world of personal investment is not a topic Sarwa readily promotes. Indeed, we honestly need to inform you here that following any trend when making a stock investment is considered speculation — not investing. Research has shown over and over again that it has a negative impact on performance.
That being said, 2020 has presented scenarios that have impacted the average investor. We are witnessing shifts in livelihoods, the emergence of new work cultures, and a divide in earnings between sectors that are overperforming while others underperform.
To give you some insight of Sarwa’s ‘behind the scene’ thinking: Our job is to keep updated on what is happening in the market so that we can observe when sharp market movements occur. This allows Sarwa to ensure that we are always properly rebalancing.
So, we decided to interview five popular investment bloggers to fine-tune our radar.
Here is what we discussed.
What is the next short-term investment trend: Disparity in sector performance due to COVID-19
How fast the world is able to produce a vaccine and restore economic activity is a top factor influencing the outlooks of many investment bloggers.
Of our survey, four bloggers named the pandemic as a top trend that they are watching.
More specifically, these bloggers looked into the strange phenomenon of high stock market growth amid global economic recessions.
At its core, this points to a gap between sectors that have benefited from quarantines and those that have suffered. Keep in mind that the global economy and the stock market, even though they are ‘related’, are not identical twins but rather distant cousins. (We actually had an in-depth webinar discussing this in detail. Check it out.)
“The stark disparity in performance in 2020 between different sectors is noteworthy,” says Ben Reynolds of Sure Dividend.
“The technology sector, health care sector, and consumer sectors have performed significantly better than energy, utilities, industrials, and real estate.”
Going into 2021, commercial property could potentially suffer as work from home becomes the new normal and office space rentals dry up. However, residential property may boom as these workers leave cities in search of a dream home to buy. (Again, here is a great place to highlight, one more time, the importance of diversification even within the same class asset.)
“All of the trends being pulled forward by the pandemic are worth watching — e-commerce, work from home, young people moving from big cities to buy a house in the suburbs or another town,” observes Ben Carlson of A Wealth of Common Sense.
“Many of these trends would have happened anyway, but they have been pulled forward many years ahead because of the speed of this crisis. The year 2020 could potentially be pivotal in terms of making drastic changes to the way people work, live and consume,” adds Carlson.
Global lockdowns have also given a significant boost to fintechs as people have been rapidly forced to adopt contactless payment methods.
“I think that [contactless payments] is a long-term trend leading to permanent changes. It would likely happen over time anyway but COVID-19 just brought about the change faster,” adds Dividend Power, an anonymous blogger.
The majority of gains from the S&P 500 since May 2020 have been generated by the top five of the US’s large tech firms.
“It is fascinating to observe that the large dominant companies in their niches kept getting bigger. The lock-downs caused by Covid-19 caused a lot of smaller competitors to lose market share to dominant companies that remained open and received a larger share of the business,” observes anonymous blogger Dividend Growth Investor.
The ultra-low interest rate environment’s impact on the market
There is consensus that sustained low interest rates of central banks — especially the U.S. Federal Reserve — will influence fiscal (tax revenue-spending) policy more.
“With zero interest rates and a large amount of quantitative easing already happening, central banks around the developed world don’t have much firepower left,” says Lyn Alden, an independent investment strategist.
“Historically in this environment, the dominant factor ends up being fiscal spending.”
Overall, this means that governments will depend more on spending their tax revenues to sway economic activity.
“Fiscal spending in developed countries is likely to play a bigger role on investment performance than central bank policy for at least a decade,” Alden asserts.
Shift from US-led equity performance to emerging markets over the next decade
To say that 2020 has impacted the US economy would be an understatement. The US has poorly managed the coronavirus outbreak, experienced widespread riots and is preparing for a messy general election.
These events have caused some investment bloggers to rethink the potential of US equity performance over the coming decade.
“The other trend I’m watching for is a potential shift from US equity performance to emerging market equity performance, particularly from China, India, Russia, and the rest of Asia,” says Lyn Alden, an independent financial analyst.
Besides the ups and downs of 2020, Lyn points to history as a sensible instructor.
“Historically, each decade has had a different region of equity outperformance. Japan’s market was the big outperformer of the 1980’s. The United States ruled the 1990’s, particularly from its tech sector. Fast-growing emerging markets ruled the 2000’s. The United States once again led the way in the 2010’s,” she says.
“It’s an open question who will win the 2020’s.”
[Looking for financial advice on how to allocate your investment portfolio holdings? Sarwa offers expert financial counsel and helps to automate your investments in portfolios that match your risk level and goals.]
Simply put: Learn to stop asking what is the next investment trend
It is a self-gratifying feeling to think that we can predict what will happen in the stock market next year.
The reality is that we cannot. And most successful investors strongly advise against even trying to follow trends.
“Honestly, statistics show that for the vast majority of investors, following trends is very risky,” says Zach Holz, A Dubai-based blogger.
“I just try to keep a good asset allocation split between a broad stock market index and a broad bond index, with some real estate in there for income,” he says.
This includes a broad range of Vanguard ETFs and one actively managed fund, he says.
“All with low fees, of course!”
The smart way to start investing
Have you tried speculation but decided you want a more intelligent way to invest your hard-earned savings?
Or perhaps you have never invested at all?
The investment bloggers we interviewed have a few final pro tips for you that we also firmly support.
“In order to succeed at investing, you need to have a plan that would help you to accomplish your long-term objectives. The investors who succeed are those who put money to work regularly, and not get scared away from the news,” says Dividend Power.
There are several techniques that intelligent investors employ. Like these top bloggers, Sarwa also recommends using these techniques to ensure more disciplined investing.
“Novice investors should consider dollar-cost averaging as their way to deploy capital and start building a portfolio,” says Lyn, mentioning a tactic that we recommend for cautious investors that may be scared to jump into the market all at once.
“The best thing about this approach is that you don’t have to worry if now is a good time to start or not; you just start.”
Finally, if you haven’t started already, it is a great time to start learning more about how modern investors grow wealth over the long term. Here, Holz has some parting wisdom.
“I think that new investors need to learn about Modern Portfolio Theory and Vanguard, get an appropriate asset allocation that allows them to sleep at night, then regularly invest no matter what is happening in the news cycle, and they should pay less attention to the news cycle, which is just meant to cause panic anyway,” he says.