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Will the Stock Market Crash in 2021?

Author: Patrick Dresdner
Patrick Dresdner
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Will the Stock Market Crash in 2021?

The COVID-19 pandemic has impacted different sectors at varying levels. More than just a health crisis, the outbreak of coronavirus has put everyone on edge. 

For the stock market in particular, there has been lingering uncertainty among investors now more than ever. Being an investor in 2020 has proven to be challenging, with major global stock indices posting substantial losses earlier this year.

The year 2020 in the COVID-19 era, without a doubt, has brought an intense level of volatility. As we near the end of 2020, investors are probably wondering if the same volatility level will be experienced in 2021. But many market analysts are bullish about the stock market in 2021. In this blog, let’s take a look at some of the predictions for the stock market for the coming year. 

Morgan Stanley

Multinational investment bank Morgan Stanley has given its stake on the stock market for 2021, and the company is completely bullish. Morgan Stanley predicted S&P to rise to 3,900 by December 2021, up from its initial estimate of 3,350. 

Morgan Stanley took into account fundamental factors. For the most part of 2020, it’s been tough to get a grasp of the performance of companies mainly due to the fact that almost every business in different sectors has suffered from COVID-19. But the bank believes that an effective vaccine could be a difference maker, putting 2021 in a different light. 

According to Morgan Stanely, Russell 2000 and other small-cap indexes could do even better than large-cap indexes. However, the bank also sees that a new wave of COVID-19 cases could be bad news for the short-term as new lockdowns could be implemented. This would hamper economic activity. 

JPMorgan Chase

JPMorgan Chase is even more positive on its view for the coming months. For the S&P 500, the bank set a target of almost 4,200. This estimate is based on a quantitative model that incorporates macroeconomic factors and relative valuations across asset classes. 

But JPMorgan’s prediction is an interesting one. Although the bank sees the stock market to be overvalued by about 10 percent to 12 percent, its analysts believe that the market is moving towards the end of COVID-19 and that the hardest-hit parts of the economy will rebound. 

Investors are advised to be ready for anything

Although the majority of analysts have a positive outlook for the stock market for 2021, investors will still need to be careful about their investment decisions. In any type of investment, there are always risks involved, and gains will definitely not come easily in 2021. Start off the new year right by preparing a long-term strategic plan for your stock market investment. 

Top Investing Trends of 2021

  1. The End of COVID-19?

Will COVID-19 finally end in 2021? Everyone of us is hoping for this, and a vaccine could make this possible. Several vaccines developed by different pharmaceutical companies are now in the final stages of testing. The question now is whether these vaccines will work as advertised, and how fast they’ll be distributed around the world. 

  1. COVID-19 Vaccine to Boost Pharmaceutical Stocks

We’re all relying on pharmaceutical companies right now to come up with the most effective and safest vaccines. If these companies are able to control the spread COVID-19 through their respective vaccines, they’ll be the absolute winners. 

Pharmaceutical stocks remain popular with investors, and rightfully so, as their stocks have gotten a big boost during 2020. This trend will likely continue next year. Stocks of vaccine makers like Pfizer and Moderna will obviously increase should their vaccines prove to be effective. 

  1. Demand for Restaurant Stocks

One of the hardest-hit industries was the food and restaurant industry. Because of the forced lockdowns and people’s unwillingness to eat out, the stocks of restaurant chains suffered a huge blow. 

But the announcement of Pfizer that its vaccine had 90 percent efficacy in Phase 3 trial pushed the restaurant stocks up. The return to normality will push their stocks even higher next year, so investor demand will likely increase. 

  1. Be Careful of Work from Home Stocks 

As most people around the globe have been forced to stay at home since March, work from home tech stocks have been in the spotlight. But the COVID-19 vaccine is bearish for them as this means workers could go back to the normal work setting. 

Communications tech company Zoom at one point lost nearly 20 percent when Pfizer announced a breakthrough on its trial. Also, stocks of food delivery services suffered too, as a potential return to normality could mean people could dine in at restaurants once again without any restrictions. 

Investing in Stocks 101

Regardless if you’re trying to retire before you’re 30 or if you’re just curious, investing in stocks is a great way to earn a passive income and build your wealth. You set the money aside and it slowly grows over the years until you’re ready to use it. It’s not that easy, though. It requires a lot of hours of research to figure out what options are best for you. If you’ve been toying with the idea of investing but have no idea how to begin, here’s the basic rundown of everything you need to know:

How will you invest?

First, you need to decide what kind of investor you are. Are you someone who wants to do it all yourself, or would you rather have an investment manager assist you? There are many discount online brokers and robo-advisors who can help you successfully invest in stocks without high fees or charging a percentage of your transactions and assets like full-service brokers do. If your place of work offers a retirement plan, try investing there first if you’re on a budget.

Stocks vs Mutual Funds

Next, you have to decide on what kind of investments you want to make.

Stocks are the individual shares of one company. You’ll build your own portfolio by picking and choosing the specific companies that you want to invest in. Individual stock can be traded throughout the day and have no annual fees. However, they are incredibly time intensive. If you plan to choose stocks yourself, you’ll have to spend hours researching and following each stock in your portfolio. 

Mutual funds are a pool of money collected by multiple investors and overseen by a group of professional managers. They are in charge of allocating the assets and producing capital gains and income. They are a great option for beginners as they give you entry into investing through a portfolio run by professionals. It is a collection of many different stocks, and everyone collectively shares any gains or losses based on the value of the securities purchased. There are different types of mutual funds such as equity funds, which primarily invest in stocks; fixed-income funds, which focus on investments that generate a specific return; index funds, which purchase along the S&P 500 or Dow Jones for fewer expenses and less risk; as well as many more. You should look into which fund best suits your needs.

Budgets and Funds

It’s important that you shop around for different brokers to see which ones fit your needs best. Some institutions require a minimum deposit from $100 to $1000 to open an account, while others forego it entirely. Each company has different rules, so carefully read through all the information so that you know what you’re getting into.

Although many brokers have been lowering their fees to keep up with competition, more often than not you will have to pay your broker a commission fee every time that you buy or sell stock. It could range anywhere from $2 to $10, which starts to add up quickly if you find yourself trading often.

There are additional fees depending on which type of fund you invest in. Mutual funds have a management expense ratio (MER) that can be 0.05% to 0.7%. There are also loads, which are sales charges. Mutual funds are a great option for those on a budget, because they charge the same fees no matter how much you invested.

Play it smart

The best way to reduce risk and maintain a good return on your investments every year is to diversify your portfolio. You should invest in a range of different assets—don’t put everything all in one company. When you invest in company stock you are required to put a $1000 deposit down plus all the fees, so it can be difficult for the beginner investor to diversify in that way. That is why mutual funds are a great option for beginners. You should only choose individual stocks if you’ve done the research and believe in the potential of the company. You have a lot of different companies and stocks within your investment, so it’s a safe option that will let you focus on the long-term game.

Leave it be

In order to get the most out of stock investments, you need to leave it alone. Use the “buy and hold” strategy where you don’t touch your stock for years. The idea is that your stock grows in market value over the years and you can collect the benefits once you feel content. Don’t look at your portfolio every day. You can easily be overwhelmed by following what happens daily to your companies. Instead, just check in a couple times a year to see if your investments are still aligned with your goals. Billionaire Warren Buffet always recommends you hold your stocks for a minimum of ten years, ideally several decades, instead of constantly trading them. Invest with a rational and disciplined mind—be critical in your decisions and don’t let yourself be easily swayed by your emotions.

For beginners, it’s best that you begin with a mutual fund as they’re convenient and less time intensive for you. You’ll have a diverse portfolio with many small pieces of investments while a group of professional managers takes care of it. There are some downsides such as minimums or annual expenses, but the pros outweigh the cons when you’re just starting out. 

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Risk Warning: Your capital is at risk. Statistically, only 11-25% of traders gain profit when trading Forex and CFDs. The remaining 74-89% of customers lose their investment. Invest in capital that is willing to expose such risks.