It was a good year to be an investor. Hard work, sacrifice, saving when you could have spent more… it paid off in 2021. We can’t control the stock market, real estate market or any free market for that matter. But we can control how exposed our money is to any particular market at any given time. Capital allocation is a term used to describe "how one deploys or reinvests cash resources." You could invest cash in stocks, bonds, real estate, or any opportunity that has the potential to return more cash back to you in excess of your initial investment (Uncle Tony’s once-in-a-lifetime opportunity excluded). Or one could decide not to invest at all, hold on to cash, or even chose to spend more of it on discretionary expenses or luxury items. There is always a choice to be made and that choice of how to allocate your capital should be evaluated regularly. In 2021, investors were rewarded if they chose to allocate their capital out of cash and into most any traditional investment vehicle. That important decision: The decision to be an investor certainly paid off. And if you are reading this blog, I will assume that’s you... so well done.
If you have been around the block like I have, you will likely appreciate the 2021 stock market return much more than if you are a “newer” investor. Investing in the S&P 500 from years 2000 to 2010, otherwise known as the “lost decade,” would have bought you a cup of coffee from Starbucks using your investment gains. It was a difficult time to be an investor during that period and many people gave up hope on the idea of investing all together. However, just as you can count on the seasons to change, you can count on the financial markets to change as well. We have been writing for years that we believe we are in the middle of a secular bull market that began sometime around 2010. If history is on our side, this bull market should continue to run. However, patience and acceptance that volatility and stock market corrections are part of the process is essential to realize your investment potential.
In my view, any year that ends in a positive return on your capital is a “win.” Double-digit returns are a significant win, so take a moment to reflect and enjoy it. However, it is a new year and new choices will need to be made on how to allocate your capital. Are stocks still attractive? Is real estate in a bubble? Will Uncle Tony finally deliver on his promises? These are questions that truthfully have no definitive answer. Anyone who claims with absolute certainty that they know the future of the market direction is not telling the truth. Free markets are reliably unpredictable. We can, however, make our highest probability forecasts, utilizing the research we have available, and decide what action to take. This is where preparation meets opportunity, and it is key to long-term financial success.
For example, last January in our 2021 Investment Outlook Strategy Webinar we advised our clients to “overweight” their capital allocation to stocks. We made the case that there was a very high probability that “equities continue to generate positive returns for 2021.” We spent time reviewing why we felt that way and the research that supported our forecast. It worked out well for our investors. Are we always 100% correct? Of course not. But when the probabilities are high enough from a risk/reward standpoint, one must capitalize on the opportunities... even when it “feels scary” to do so. I can share with confidence that whatever advice we are giving out, we are also implementing with our own money and our own family’s money. Right or wrong we are in this together. So, stay tuned for our 2022 investment outlook. It promises to be well-researched, statistically analyzed, and our best advice for allocating capital in 2022.
P.S.
If you haven’t taken the time to read our Chief Investment Strategist Brad Tremitiere’s monthly statistical market update and outlook, I suggest you give it a try. His track record and insights are quite impressive.
Happy New Year to you and yours! May God continue to bless you and your family in 2022.