A 2020 Year-End Guide for Investors

If you are like most Coloradans, you cannot wait to turn the page on the 2020 calendar year. Queen Elizabeth was famous for calling 1992 “annus horribilis,” which is a Latin term for horrible year. In that year Windsor Castle caught fire and three of her four children got divorced.

I would argue 2020 was 100 times worse, thanks to the pandemic, stock market crash, continuing racial inequality, wildfires, and a contentious presidential election.

Looking ahead to 2021 there are reasons to be hopeful. Pharmaceutical companies Pfizer and Moderna and others will be rolling out their vaccines, the real estate market should be buoyed by continued low interest rates and the stock market has the wind at its back with a reopening of the economy.

Having Janet Yellen as U.S. Treasury Secretary and Jerome Powell as Chairman of the Federal Reserve is very bullish for the markets as well. This duo will do what it takes to provide confidence to the markets in terms of loose monetary policy and incredibly low interest rates.

Whether Congress passes a stimulus package, and the Republicans hold onto the Senate after the Georgia Senate races, remain the biggest wildcards for the markets in the short run. Neither are certain, but odds favor some sort of stimulus package in the next 60 to 90 days and the Democrats winning back the Senate is unlikely. If the Democrats do not win both seats, the Republicans will hold a slim majority in the Senate and the current favorable tax policy will not likely change.

What is an investor to do now with less than a few weeks until the end of the year?

• First, check your investment accounts to see how you are positioned from an asset allocation perspective. This is the key to your investment returns going forward. In investment accounts you should own more stocks than bonds because the returns in bonds will likely not keep pace with inflation and stocks give you a reasonable chance for appreciation, particularly if you own them for more than five years.
• Second, look at your taxable account for any losses you can take to offset gains. Even if you like the stock or mutual fund you have a loss on, take it before the end of the year, particularly if you have any gains this year. Why pay capital gains taxes if you can mitigate them with losses? Losses can also be used in perpetuity so harvesting them now is not a bad thing either. You can store them on your tax return until a future year when you have big gains.
• Third, touch base with your investment advisor, CPA, estate planning attorney and life insurance agent. Make sure your beneficiaries are up to date on your retirement accounts and you’re aware of the latest tax changes. It’s also wise to check to see if your will and medical/legal power of attorneys are current, and that you have enough life insurance in place for your family in case you die.

If the coronavirus has taught us anything this year, it’s that it is much better to be prepared for things we cannot control. By taking these steps now you can look forward to the year ahead knowing you are well-organized for whatever surprises 2021 may throw at us.

 Fred Taylor co-founded Northstar Investment Advisors, LLC in 1995. The firm specializes in managing personalized investment portfolios for individuals, families, and retirees with a focus on income generation. He is a member of the Colorado Forum and also served as an economic advisor to Colorado Governor Bill Ritter from 2008 to 2010.