Global stock markets continued their positive trend during the second quarter of 2021 and many stock indexes were at or near their all-time highs as we celebrated the 4th of July holiday. The surprising news during this past quarter came abruptly on May 13th, when the CDC announced that vaccinated Americans no longer needed to wear masks when indoors. Most states quickly followed this guidance and by Memorial Day weekend, it began to feel like life was finally returning to normal in the USA.
With US economic activity returning to pre-pandemic levels and investment markets rising well-above 2019 values, it could be expected that Americans are ready to return to our pre-pandemic lifestyles. But the emotional toll of the past 18 months will linger and many of us will continue to be cautious. We might leave a little more space when waiting in lines, wear masks in crowded places and be more diligent when planning trips to cities or outside the US. There are still real worries about COVID-19. Will the Delta variant spread rapidly? Can other nations achieve the level of vaccination reached in the US? Will international travelers introduce other viruses to the US?
Many of us have similar emotions and questions about investing. Is there a new debt crisis in the US? Are technology stocks in a bubble? Are housing prices rising too fast? Will 1970s-style inflation return? Reasonable people have different opinions on these questions. That’s why we diversify our investments. Stocks are inherently risky and recent Bear Markets have been steep (2000-2002, 2008-2009 and February-March 2020), but Stocks also provide the best potential for growth. We need to take some risk to reach our long-term financial goals.
Led by the US Federal Reserve Bank, central banks in the developed world continue to set short-term interest rates near 0% as they try to support economic growth. Cash holdings at most banks earn no interest. Bond yields are also low and expectations for near-term returns are muted. But for prudent investors Bonds and Cash continue to be part of their investment allocation to provide stability and lower overall investment volatility.
In a post-pandemic world, we will approach our day-to-day life decisions much as we do our investment strategy. What is the risk versus the reward? Over time, we will start to focus more on the potential rewards as our memories of the risks fade further into the past. Schools will re-open, crowds will pack Fenway Park and handshakes and hugs will feel normal. But the pandemic will remain in our memories.
This article was authored by Christopher Borden, a financial advisor and Managing Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or [email protected]
Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Talk to your financial advisor before making any investing decisions.
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