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Using Data to Position Assets Favorably!

Q1 2021 Commentary…
2020 was a year full of alarming statistics. One you maybe didn’t hear was that over 10 million new brokerage accounts were opened by first-time investors in just the United States alone! This influx was the result of three things: stimulus checks, a pandemic-induced market selloff, and the elimination of trading commissions at brokerage firms such as Schwab, TD Ameritrade, and Robinhood.

2020 created a perfect storm to attract more individuals to invest, which is a great thing for market efficiency and liquidity. The dangerous part of this perfect storm is that many younger, new investors have not yet experienced a significant market crash, as most of this new money came into the stock market during its recovery. Significant gains were created by and for investors who were willing to take on the risk of buying assets some maybe didn’t even fully understand. New money was piling into SPACs, Bitcoin, LIDAR stocks, to name a few. (If these terms don’t ring a bell, it’s okay. We got you covered.)

In client accounts that could afford to take the risk, we benefited from the irrational exuberance of many of these first-time investors. In fact, we rode some of the waves they created. However, we know the tide can go out just as fast as it comes in, and as asset managers, we have to have a game plan in place for when markets aren’t turning up all roses. Discipline is often what marks the difference between casual, DIY investors and those of us who do this for a living in times like these.

If 2020 taught us anything at Future Bright, it’s that we have to pay attention to the raw economic data more than ever before. We’re not talking COVID numbers. We’re talking economic numbers. Specifically – GDP and Inflation – which are the two most telling indicators of what lies ahead for financial markets.

Currently, we’re in a “GDP up, Inflation up” environment. Certain investments work better than others under these economic directional conditions, and it’s our job to find them for you. It’s also critical to recognize these economic directional conditions will periodically shift. That’s just how economies ebb and flow. They endure four cycles: Prosperity, Reflation, Stagflation, and Deflation. If we know the current economic directional condition and can also see when that condition is changing, we can use data to position assets favorably under any condition.

Ironically, asset management in 2021 will be much more challenging than it was in 2020. We expect to see greater market volatility this year. (Honestly, we thought volatility would come in Q4 of 2020, but it never did.) Nonetheless, it is also a very exciting time to be an investor. The public policy response driven by COVID has actually accelerated many new market opportunities in technology, energy, healthcare, e-commerce, and other industries. As always, there will be winners and losers in the markets, but there are some great opportunities for wealth creation ahead borne out of both volatility and emerging investment opportunities.

Future BrightUsing Data to Position Assets Favorably!