Retirement Plan Update, Q1 2021
The first few months of 2021 were quite eventful in the U.S. economy and financial markets! As the year started, the nation was in the final stages of the 2020 election cycle and there was increased uncertainty about financial policy; however, that uncertainty was resolved in January and the economic recovery continued after the brief Covid related recession in 2020. The S&P 500 finished the quarter up nearly 6%.
The quarter saw a resurgence of consumer spending and confidence with significant progress on Covid vaccinations, declines in cases and an uptick on reopening activity. The positive economic news reinforced expectations for the stock market, but also fueled anticipation of rising inflation. This had a large impact for the bond market as investors sold high quality, defensive bonds that carry low yields. As a result, the aggregate bond market was down nearly 4% for the quarter. This trend should not be permanent as inflationary changes are expected to be temporary while economic policy is set to stimulate growth and continued recovery.
The recovery in stock prices over the last year has driven market valuations to high levels based on market history. It would not be surprising to see the stock market experience a healthy correction at some point, but that should create good buying opportunities for plan participants and investors who are dollar cost averaging purchases. After all, the Covid situation has continued to improve, the economy is growing, and consumers have a lot of pent-up demand. Stock price follows earnings over the long term, so we remain optimistic for the year ahead.
What to do now?
We would encourage participants to take advantage of the opportunity to contribute and earn the maximum match that your plan offers! The regular contributions represent the easiest way to “pay yourself first” with savings for the future, and any additional match your company provides will boost your savings substantially. Plus, by buying shares during each paycheck, we often see better long-term results because there are times when the market is lower, and you are able to buy shares “on sale”. Please do everything you can to save for your future – every bit helps, especially when you have time on your side to let your investment work for you!