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  • Writer's pictureBrock Williamson, CFP®

Two Investment Lessons From 2021

Just about every year the stock market teaches us important lessons that we can learn and apply to become better investors. 2021 was no exception.

Lesson # 1 Stocks: 2021 was a fantastic year for the stock market. Despite the strong performance, there were plenty of concerns along the way that could have influenced an investor to throw in the towel.

We experienced a new president and staff in the white house to start the year. Then inflationary pressures became a major theme throughout the year with concerns of what that would do to the markets. We also had supply chain issues with cargo ships sitting off the coast of the US, perhaps adding more fuel to inflation and concern for the health of the economy. And just recently, we have had the Omicron variant with a significant spike in cases.

Yet, despite all these concerns, the stock market did very well. It is said that markets climb a wall of worry, and that was validated in 2021. Of course, markets don’t always go up, but having concerns or unanswered issues does not mean the market will go down.

Lesson #2 Bonds: Bond investments during 2021 were not a good investment. The Total Market Bond Index (which is a sum of all publicly traded bonds) was down 1.8% in 2021. The stock market is very difficult to predict which direction the market is going (up, down or sideways). Bond prices on the other hand have some very big indicators. Mainly bonds are directly correlated to the direction of interest rates. As in, if interest rates go up, bond prices go down and vice versa. The FED is forecasting higher rates in the future (2022) to cool off inflation. Our outlook is this trend of poor bond performance will continue. We have been discussing this with clients about Bonds=Bad for a while. We would much rather use Bond Alternatives in today’s market environment to produce income and stability. This includes income producing Real Estate, Fixed Indexed Annuities and Preferred stocks. If and when we do allocate to bonds, they tend to be municipals, high yielding bonds and floating rate notes.

2021 was a good reminder that markets can do well in the face of uncertainty and concerns. Our investment decisions shouldn’t be based on how concerned we are or how we feel, as those tend to change often. Instead, we should ensure our investment decisions are based on our plan, our situation and guidance from our advisor – irrespective of what the worry of the day is at that moment.

©2022 The Behavioral Finance Network. Used with permission

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.


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