Wow, what a year and how appropriate to be using 20/20 hindsight as a metaphor as we look back across the past 12 months. We will all remember very clearly the struggles and challenges our world collectively faced. Investors were initially giddy to begin the new decade and markets rallied over the first 6 weeks of the year. Then it all came unglued.
By Will McGough on January 12, 2021
Wow, what a year and how appropriate to be using 20/20 hindsight as a metaphor as we look back across the past 12 months. We will all remember very clearly the struggles and challenges our world collectively faced. Investors were initially giddy to begin the new decade and markets rallied over the first 6 weeks of the year.
Then it all came unglued.
Investors soon became paralyzed over the very real fears of the first global health crisis on the scale of the 1918 Spanish Flu pandemic. COVID-19 not only brought about real health scares, but financial ones too.
To a huge swath of observers, the stock market’s behavior during 2020 makes zero sense. The United States stood in the midst of record unemployment, unprecedented waves of government-mandated lockdowns of businesses, stay-at-home orders, and other restrictions which impacted regular citizens in significant ways.
As news reports of both COVID and the increasingly upset apple cart of the economy poured in daily, those watching the major stock indexes hit bottom, then soar, made note of how odd it all seemed. How could there be such a wide disconnect between Wall Street and Main Street? The answer was simple: The Federal Reserve responded to this crisis in record time. Economic support that took the same central bank months to enact in 2008 occurred in mere weeks during 2020.
Fear was running rampant in March and April, and some of the smartest folks in finance rolled out on CNBC and confirmed such. How did Stadion handle this emotional rollercoaster? By sticking to our process of allocating your retirement savings based on your risk tolerance which is determined by taking into account several factors including age, location, salary, and 401k contributions. And you can rest assured that we will follow our pre-determined plan for you, even in these scary times.
We consider this past year a healthy object lesson with regard to how you think about retirement saving. Stadion manages retirement accounts for over 50 thousand participants, and we have encountered pretty much every market situation and handled accounts for every type of investor you can think of. There are some participants who only check their account a few times a year.
Even during the tumult of March and April, we believe our retirement investment process can assure you that time is on your side and your account is composed of a suitable allocation that is going to grow reasonably as markets rise over the long term and you remain steady with regular contributions. For example, even after the historic market drops early in the year, the S&P 500 Total Return for 2020 was a remarkable 18.4%.1
Your personal reflections on wild market moves, the emotions you felt, and how they may have caused you to rethink your retirement savings plan speak to your willingness and ability to take risk. When it comes to long term retirement investing it is absolutely critical to both recognize one’s emotional response to major market moves and remain committed to your overall long-term investment plan.
We believe that the way we run our managed accounts can get you in the right portfolio to help you meet your goals.
This would not be possible in a simple Target Date Fund (TDF). In these retirement funds, every investor of similar age would share an asset allocation. During a Zoom meeting last year, an advisor clarified and punctuated this point when he said, “If you want to change your risk tolerance using TDFs, you have to lie about your age!”
Well, this hit home, because my dad just retired last summer. We all hear the horror stories of retiring into, or just after, the teeth of a bear market. But he offered a confirming prospective. Working with his advisor they settled on a 70/30 equity to fixed income asset allocation. No 2020 TDF or Income fund has this aggressive of an allocation. In order to have the allocation he desired, he had to lie about his age.
The epic market recovery was not the only bright spot of 2020. These tough times have reinvented business and lifestyle and will likely continue to do so. The use of technology has skyrocketed. While we may lack some human connection, the speed and efficiency technology has granted to both business and social meetings is nice. For many of us, it has been an impetus to slow down, focus on the simple things, re-evaluate, and improve our houses or, indeed, lives. Our homes have all probably received a boost of TLC, and stocks like Home Depot have done well.
Creative artists today have found multiple ways to leverage technology to connect with their audiences. There was no shortage of readily available, fresh entertainment throughout 2020. Much has already been said about how Shakespeare created some of his best work during the Bubonic Plague. Perhaps the creative folks in the entertainment industry have years of amazing content queued up!
Even if the popular mind ever does forget 2020, its impact on almost every financial chart will never be erased. Here is the U.S. national Gross Domestic Product (GDP), which is a measure of economic output:
(Chart Source: Stadion)
2020 was historic to say the least!
We cannot escape the numbers, both those reflecting the economy and those which remind us of the seriousness of the pandemic. They are very real, and we send our best hope for a better tomorrow and condolences to anyone who was immediately affected by the terrible virus. Our days are numbered, and we hope you live each day to your best. Planning for retirement is a tricky thing, because we have to think about how long we might live. As we move further away from the pandemic, many things will evolve. Fortunately for you, that evolution away from target date fund to a managed account is underway.
Having a plan helps you navigate stormy financial conditions like we saw this year. The comfort of having a plan in place is even more important when other concerns, such as health, necessarily outweigh all others. We will continue to monitor the markets and appropriate risk factors on your behalf to ensure that your optimal retirement investing plan is in place. We appreciate the opportunity to serve you and wish nothing but the best for you and yours.
Chief Investment Officer, Retirement
Author: Will McGoughChief Investment Officer of Retirement Will McGough joined Stadion Money Management in 2003 and currently serves as Chief Investment Officer of Stadion’s Retirement investment strategies which comprises oversight of Stadion’s risk-based, target date, and managed account strategies. He is a member of the Investment Committee and Senior Management team, and serves as as Stadion’s Chief Investment Officer, Retirement. He provides thought leadership for Stadion’s participant level, customized retirement solutions, in order to ensure that its glide path technology and asset allocation are able to support all intermediaries in the defined contribution ecosystem. Will received his BBA in Finance from the University of Georgia and also holds the Chartered Financial Analyst designation. Will is a member of the CFA Institute, the CFA Society of Atlanta, the American Association of Professional Technical Analysts, National Association of Active Investment Managers, the UGA Alumni Association and National Eagle Scout Association.
Published December 31, 2020; Accessed January 3, 2021
The S&P 500 Total Return Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices. As a Total Return Index, it presumes the reinvestment of dividends.
Gross Domestic Product is the total value of goods produced and services provided in a country during one year.
A target-date fund is a class of mutual funds or ETFs that periodically rebalances asset class weights to optimize risk and returns for predetermined time frame.
There are certain limitations to technical analysis research, such as the calculation results being impacted by changes in security price during periods of market volatility. Technical measurements are one of many indicators that may be used to analyze market data for investing purposes and should not be considered a guaranteed prediction of market activity.
There is no guarantee of the future performance of any Stadion account. Material has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Results based on available universe of Target Date Fund Series, which includes registered mutual funds, and non-registered collective investment funds and insurance accounts. Collective investment funds and insurance accounts are only available for investment to qualified retirement plan assets such as 401(k) plans.
The commentary, analysis and opinions expressed are those of Stadion’s Investment Team. The commentary, analysis and opinions referenced are as of the date of publication and are subject to change without notice. This material is for informational purposes only and should not be considered investment advice. This is not a recommendation to buy or sell a particular security. The investment strategy or strategies discussed may not be suitable for all investors.
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Diversification does not eliminate the risk of experiencing investment losses.
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