With less than a day of trading left in London for 2021, I’ll reveal seven crucial factors that affected my investing in in 2021 and could still make an impact next year.
Global growth rebounded
When Covid-19 rocked markets in early 2020, economists rapidly downgraded estimates for economic growth. But the global economy rebounded strongly this year, driven by successful vaccination programmes. Thus, global growth is forecast to have been 5.6% for 2021, following a 3.4% fall in 2020. I calculate this is the strongest rebound since 1973 — and strong growth often lifts investing returns.
Investing in the US: S&P 500 surges
It’s been a great year for investing in US stocks. As I write, the S&P 500 index stands at 4,793.06 points, close to Tuesday’s record high of 4,807.02. Over one year, the index has soared by 28.4%, following leaps of 16.3% in 2020 and 28.9% in 2019 (all excluding dividends). But given the S&P 500 has more than doubled over five years (+114.1%), I wonder if this bull market can keep going much longer?
Investing in the UK: FTSE 100 lags behind
One disappointment from the ‘everything rally’ in 2021 is the FTSE 100 index. As I write, the Footsie stands at 7,422.79 points, close to Monday’s 2021 peak of 7,457.14. Over one year and excluding dividends, the index has gained 13.2%. However, it has risen a mere 3.9% over the past five years, making it a poor relation of its American cousin once again.
Bonds bombed
In the past, bonds provided portfolios with ‘risk-free returns’. These days, I see them as offering ‘return-free risks’. Hence, my family portfolio has held no bonds for several years. This year, the global bond market has fallen by around 5% — its worst performance since 1999. With inflation returning, I’d be reluctant to start investing in bonds in 2022.
Crypto investing: Bitcoin boomed
Almost anyone under 30 who discusses investing with me has one thought: Bitcoin. The price of ‘digital gold’ has been highly volatile in 2021, ranging between $29,000 and $68,000. Currently, it stands at $47,476, up 64.3% over one year. That’s another big win for crypto fans, but one that might not last (or maybe it will, nobody knows). Meanwhile, the price of real, old-fashioned gold fell by 5.2% over one year. So much for gold’s alleged role as a hedge against inflation.
Inflation returned with a vengeance
Since the turn of the century, developed-world inflation has been very subdued. But in 2021, it staged a major comeback. In November, US Consumer Price Index (CPI) inflation soared to 6.8% a year, its highest level since June 1982. Over the same period, UK inflation hit 5.1%, a 10-year high. What’s more, economists don’t expect inflation to peak until perhaps mid-2022, further eroding family incomes and investing returns. Yikes.
Interest rates rose
As inflation took off this year, bond yields rose in the US, UK and eurozone. In late 2021, the Federal Reserve began to wind down its bond purchases from $120bn a month to zero by March 2022. The US central bank also plans to raise its key interest rate by up to three times in 2022. Meanwhile, the Bank of England raised its base rate in December, the first increase for three years. It remains to be seen how well investing returns fare in 2022 as rates creep up.
Finally, 2020-21 has produced exceptional investing returns for my family portfolio. Yet I remain cautious about the risks of another stock market crash. That’s why I’ll stick to buying lowly rated, high-yielding and cheap UK stocks in 2022-23!
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The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
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