Politics. Vaccines. Market volatility. How are you helping investors stay focused this year?

I know we are all very excited about 2020 ending. If you were able to help clients not listen to all of the noise that affected the financial markets over the year, they did really well. How well? As of Dec. 31, 2020, total returns per Morningstar Direct are:

  • Russell 1000® Index: 20.96%
  • Russell 2000® Index: 19.96%
  • MSCI World ex USA Index: 7.59%
  • MSCI Emerging Markets Index: 18.31%

These would be amazing numbers in a regular year, but throw in a presidential election and a global pandemic and these numbers, in my opinion, are incredible. What is even more incredible was the volatility throughout the year. Just in the first quarter of 2020 alone, the Russell 1000® Growth Index rose 2.24% in January, and then plummeted -6.81% in February and -9.81% in March.

During this time, I received a lot of calls from advisors asking how much further the market could drop. The uncertainty was hard on everyone. I kept a journal during the sell-off and my entry on March 22 sums it all up: Stood in line for toilet paper for the first time in my life. Absolutely crazy. The market was down big on Friday, but this too shall pass.

If you had clients who went to cash during that time, they’re not bad investors, they’re just human. We believe if clients had remained invested through the market turmoil, they would have done really well. The problem is, the COVID-19 pandemic was not the only event that shook clients. The other event was the November election. I spoke to many advisors before the election and the biggest concern from them was not who would win, but how many of their clients were making investment decisions based on who was elected. Many clients with very strong emotions about the election decided to go to cash. Going to cash is not always a great investment decision because eventually you have to decide when to get back in.

I think there has never been a year like 2020 to truly show the value of working with an advisor. We believe that behavior coaching was one of the most vital parts of the advisor job description last year—in particular, ensuring clients do not make bad decisions during stressful times.

Before I get to some thoughts about 2021, let’s revisit the signal acronym I used in this blog post and see if the same kind of noise could occur in 2021:

S - Stars eventually fade

I - International still exits

G - Growth is not the only answer

N - Never confuse your politics with your plan

A - Always keep your outcome in mind

L - Lucky to be alive during this time in history

Stars eventually fade

Not only did the stars in the market not fade, they have actually gotten bigger. At the time of this writing, tech is now roughly 30% of the S&P 500® Index. That weighting has helped drive the S&P 500 to all-time highs. In 2020, the following companies saw their stock rise (as of Dec. 31, 2020):

  • Apple - up 82%
  • Amazon - up 76%
  • Microsoft - up 43%

These were the biggest companies going into last year, and they have gotten bigger. The new phrase coined for these companies is the stay-at-home portfolio. If we all stay at home forever, the valuations of these companies are likely justified. How long will this continue? When will the vaccines now being rolled out around the world help us get back to a somewhat normal life?

International still exists

The international opportunity set was a bit of a mixed bag throughout last year. COVID and Brexit uncertainty battered the United Kingdom. We believe valuations and the recent resolution of Brexit might allow UK markets to begin to lift off.

Finally, who would have thought emerging markets would have gained so much in the year, considering China was the first to grapple with COVID-19? We’ve written quite a bit about the rebound in emerging markets of late. In our 2021 Global Market Outlook, we note that China has returned to almost pre-pandemic output levels—a significant achievement given the depth of the first quarter downturn.

Growth is not the only answer

Growth continued to dominate in 2020, as measured by the Russell 1000® Growth Index, which gained 38% in 2020. But since the presidential election concluded and vaccines have begun to be administered, there are hopeful signs for value, with value stocks leading the way in the final quarter of the year. One of the smartest colleagues I know, Mark Eibel, has noted Value=Vaccine. Hopefully he is right. If the rollout of the various vaccines goes as planned and people can resume their pre-pandemic lives, that could bode well for value.

Never confuse your politics with your plan

I never thought the idea of never confuse your politics with your plan would be as pronounced as it has been this past year. Before the presidential election, I spoke to many advisors with clients who wanted to go to cash. I know many of you did a great job in keeping clients in the market, and they have likely been rewarded. I always say the biggest detriment to someone’s return is their own behavior. Behavioral mistakes cost real money. That’s why we believe it’s important to remind your clients what you do for them and, if you haven’t already, share with them our Value of an Advisor client kit.

All about the plan

Even with market volatility, clients who have a written plan still know what their current situation is and what they are trying to accomplish. Planning helps provide peace of mindWe believe that when investors feel at peace, they are more likely to stay invested. One of the biggest developments I have seen in the financial industry over the past 24 years has been the evolution of financial plans. Financial plans not only help with providing a roadmap for clients, but they also help clients from making bad behavioral decisions. At Russell Investments, we have a set of discovery cards to help with the client discovery process.

Lucky to be alive during this time in history

A lot of people have had an incredibly hard time this past year, but what if this pandemic had happened 20 years ago? Who could have worked from home? The iPhone was not invented until 2007. Who even used Zoom two years ago? What about being able to get everything you needed via Amazon? Being able to keep everyone entertained via Netflix or Hulu? Then, consider that we were able to get a vaccine approved and put into people’s arms in under a year. What a time to be alive!

The bottom line

I am sure 2021 will also be very NOISY. We need to get the vaccine globally distributed. We need to get our kids back in school. We eventually need to figure out how we are going to pay for all the fiscal support provided in 2020. We believe the role advisors play today has never been more vital in helping investors navigate so many issues. Take comfort. Like last year, your partners at Russell Investments are only a phone call or an email away. Let us know how we can help.