What a year 2020 has been. After the stock market pulled back in the spring, we have rebounded to hit an all-time high in the S&P 500 and DJIA in December.
With a new administration about to take office, is now a good time to harvest gains and move some money to cash? Listen to Barry and Steve as they talk through this topic.
If you have any questions, please reach out to us here, or give us a call at 615.370.4040. We'd love to talk with you further and help wherever we can.
“If you had missed the best 10 days of the last 10 years of the market, that’s all you just had to be out 10 trading days, your account would be 33% lower than what it would have been have you stayed in.”
Transcript:
— Barry McCall, CFP®: Steve, we’re approaching the end of the year 2020. What are you expecting? What are some of the things that you're hearing from our clients, or questions that they might have?
— Steve Alverson, CFP®: They're two fold. The first thing, the stock markets are finishing out the year at all time highs again. September and October were a little slow. There was some uncertainty as a result of the election, but since the election, the markets have turned positive pretty fast. I think a lot of the questions are stemming around that. Is this a good time to start selling some of your stocks and move some to cash? Do we harvest some of the gains? I think the second part is it going to continue into 2021?
— Barry: Every client situation is going to be different.. So I think that we would tell a client, is now a good time to harvest gains? Well, if it makes sense for them in particular, we'd want to. I wouldn't say that just in a broad brush, is this a good time. We've seen with what we've done with clients and cash management, that when we can raise cash, it's obviously better to do that when the markets are high than when they're low. Every situation is going to be unique, but would this be a good time to raise cash? Let's say if they need cash, then yes it probably would be. Taking it into account that you're managing gains and losses along with that as well. Just being aware and sensitive to those things.
I think to the other question, is this going to continue? I think of that in a couple of different ways. November for us was a really good example of, clients that if they became very frustrated, and we did have some, not frustrated but anxious, September and October, all the uncertainties heading into the election, we had a couple of folks who really wanted to move to cash. The accounts were down in September and October, and it felt like they was going to continue to do that. There was a lot of fear. Well, for those that stayed invested, which is what we always advise clients to do, you look at November statements and most clients saw their portfolios increase anywhere from seven to 10% the month of November. It's just such a great lesson that we can not predict when the market is going to go down and when it's going to come up. There's always going to be negative headlines that create uncertainty and fear.
I think one of the mistakes that investors make too often is they focus on the headlines and think the headlines are going to drive the market, and they never do long term. Some investors focus too much on the short term, as well as opposed to the long term. There've been a lot of studies done that have shown, and especially for the last 10 years, that if you had missed the best 10 days of the last 10 years of the market, that's all you just had to be out 10 trading days, your account would be 33% lower than what it would have been have you stayed in. The best 20 days, so even less than 2/3 of a month, over the last 10 years, the account would have been roughly 1/2 of what they would have been if they stayed in market. So that's why we always try to encourage our clients to stay in, because we know it's hard. It's hard for us to tell them that, and it's hard for us to do it ourselves, but history has shown that if you do that, you're going to be okay.
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