My thoughts on the future of the Stock Market and the potential crash of 2021
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The stock market is reaching a new peak, so the question that’s been on my mind is - are we in a bubble? And when is it going to burst? And should I wait to buy stocks, or should I buy stocks now? The stock market is truly unpredictable, so that’s what we’ll try to cover in today’s video.
If you had your money investing in the stock market, you could have gone to sleep in February and if you slept all the way until the middle of August, when you woke up, you would have barely noticed any difference with regards to what happened to your money despite the stock market crash of 2020. Even though the stock market recovered 34%, you wouldn’t have even known. But the average time that it takes a stock market to recover after a crash, has historically been 4.2 years if averaged out over the span of the stock market’s history. Except, we didn’t do it in 4.2 years - we did it in a lot less. That’s because the stock market is almost at an all time high. In fact, we experienced the shortest bear market and the fastest stock market recovery at a blazing of just 5 months.
So here’s what happened to my dividend investing stock portfolio. Based on my income from last year in July, I was paid $484.07. In the ideal world, my income would grow by at least 6% per year assuming that I just reinvest my income. Except this month, according to my Robinhood statements, I earned $456.84. That’s $27.23 cents less which also represents an income loss of 5.6%, so literally a decrease in the opposite direction. A $27.23 is thankfully not that much money, so I will live, and it’s because I’m diversified across many sectors and many stocks which is how I designed it to be but I’m still curious - why did that happen?
The issue behind some of the income cut was because of Wells Fargo who cut their dividend by a massive 80%. Instead of earning 51 cents a share, in September, I will be paid closer to 10 cents a share. Also in August, this month, BP, a stock I held quite lot of, decreased their dividend in HALF. So instead of earning 63 cents a share, I will now earn 31 cents a share in September. That decrease will cost me $87 a year. It doesn’t sound like a lot but if you have couple of those throughout the year, and it can add up to several hundred dollars a year.
The lesson here is to remember: don’t put all your money into just a few stocks, especially concentrated around one sector (even if it’s tech). Despite my income being LOWER for the first time ever, the portfolio itself, the overall value, is almost at an all time high. My income has decreased, but the value has increased. Why is that? This is really interesting. The tech sector right now, represents 33% of the S&P500. The 5 biggest holdings of the stock market right now are Amazon, Apple, Facebook, Google, and Microsoft. Just those 5 companies alone, make up about 22% of the entire index because they performed so well. Naturally, when companies do really well, those indexes increase their holdings for those companies.
In addition to tech outperforming everything else, the Federal Reserve has pumped several trillion dollars into the system. We have more liquidity, there’s a lot more money to go around and it’s a lot cheaper for companies to borrow that money to grow their operations. Also, since the pandemic started, analysts predicted earnings to be bad so they set extremely low expectations. But after we saw some of the earnings reports beat those expectations, the stocks climbed even higher. Add the occasional retail investor and that’s the receipt for unprecedented growth.
My overall conclusion is that this year, more than likely, we will finish strong. It won’t be until next year after the election, when we will see another shakeup. Until then, as long as the Fed support is strong, real estate, stocks, and the overall economy won’t budge much lower.
*None of this is meant to be construed as investment advice, it's for entertainment purposes only. Links above include affiliate commission or referrals. I'm part of an affiliate network and I receive compensation from partnering websites. The video is accurate as of the posting date but may not be accurate in the future.