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Winter 2021 SWMG Newsletter

2020 was a perfect reminder of the principles of successful, long-term, goal-focused invest­ing. Looking back, it is hard to believe that the market went from an all-time high in February and then went down by roughly a third in five weeks in reaction to the greatest public health crisis in a century.

Remarkably, after the Federal Reserve (Fed) and Con­gress responded with massive intervention, the economy learned to work around the lockdowns – and the result was that the S&P 500 regained its February high by mid-August.

The lifetime lesson here: At their most dramatic turning points, the economy can’t be forecast, and the market cannot be timed. Instead, having a long-term plan and sticking to it – acting as opposed to reacting, which is your and my investment policy in a nutshell – once again demonstrated its enduring value.

“Waiting for the pullback” once a market recovery gets under way, and/or waiting for the economic picture to clear before investing, turned out to be formulas for sig­nificant underperformance, as is often the case. The American economy—and its leading companies—contin­ued to demonstrate their fundamental resilience through the bal­ance of the year, such that all three major stock indexes made mul­tiple new highs.

The second great lifetime lesson: Never get your politics mixed up with your investment policy. Many supporters of both Presidential candidates were genuinely convinced that the other would, if elected/reelected, precipitate the end of American democracy. Investors who exited the market in anticipation of the election did not do well. The markets are not political. They are about making money.


Reasons for Optimism: We see cautious optimism from many analysts and portfolio managers we follow and want to share some of these recurring themes.


Pent-up Demand: The period after the 1918 pandemic was followed by one of the greatest growth periods in American history as that health crisis created pent-up demand. Many analysts believe this “pent-up demand phenomenon” is occurring now and that it will similarly affect our economy as the vaccine continues to roll out and the economy opens.

Goldilocks Government: With the Senate so evenly divided between Democrats and Republicans, the most ambitious political plans are likely to be off the table. This Goldilocks government is historically a good thing as markets generally like predictability and moderation. The Dow Jones Industrial Average (Dow) and Russell 2000 indices actually hit new highs on January 6 when the Georgia run-off winners were declared.

There have been 18 single years where our government had a Democratic majority and a Democratic President. The market was up 15 of those 18 years and averaged over 13% per year. Capital markets care about one thing…making money — not politics.

Low Interest Rates: The Fed has indicated that it intends to keep interest rates near these extremely low levels until the economy has reached full employment, which they expect will be 2023 or 2024. Low interest rates have historically been good for the markets, as well as businesses and consumers, who can borrow at attractive rates.

Continued Support from Government Stimulus: The government has been clear that it will continue to support our economy as it recovers from the health crisis and recession.

Management of your portfolio: We are experiencing an unusual market. Some stocks are very expensive now. Conversely, quite a lot of stocks are undervalued. This is the highest level of dispersion seen since the 2008-2009 financial crisis (T. Rowe Price). This is why we continue to recommend, and focus more on active management than indexing. We rely on our managers to select the best companies for our portfolios and (just as important!) determine what we should not own in our portfolios.

The Cost of Growing our Capital: With all the optimistic points we’ve listed, keep in mind that the price we pay for the growth of capital in the markets is volatility. It should be expected that we can experience a 20% decline in the stock market at any time. Since 1928, this has occurred on average every 3.5 years. 10% corrections occur once per year on average.

If you prepare for downturns by addressing these issues, we believe your odds for success can be very promising:

  • Have adequate emergency money
  • Own a properly managed, balanced, and allocated portfolio
  • Be emotionally prepared for volatility, enabling you to keep your wits about you during volatility

If you have questions about your readiness, we are happy to review your situation and all three of these issues with you again at any time!

Gratefully yours,

Magay Shepard, CFP®
Senior Vice President/Investments

Dan Emmons, CFP®, MBA
Financial Advisor


Here’s a quote from Charlie Munger, Warren Buffett’s business partner:
“The first rule of compounding is to never interrupt it unnecessarily."



The Standard & Poor’s 500 Index is a capitalization-weighted index that is generally considered representative of the U.S. large capitalization market.

The Dow Jones Industrial Average is an index that shows how 30 large, publicly owned companies based in the United States have traded during a standard trading session in the stock market.

The Russell 2000 Index measures the performance of the 2,000 smallest companies in the broader Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization.  The average market capitalization is approximately $490 million, and the median market capitalization is approximately $395 million.

Indices are unmanaged and are not available for direct investment.

Past performance does not indicate future results. 

Asset allocation does not ensure a profit or protect against loss