“Get fully invested — and stay that way.”
That exhortation comes from a report giving Citi Private Bank’s outlook for 2021.
"As you think about investing in 2021 and thereafter, we urge you to address two vital issues," the bank wrote to its clients.
The first issue is how much cash a client might need on hand over the next five to 10 years.
“This requires you to determine the liquid resources you truly need to maintain for a rainy day or rainy year,” the bank wrote.
The second issue, the bank writes, is purely a matter of coming up with a truly long-term investment plan that is long enough to smooth out the market’s ride. The philosophy here is founded on two principles – “keeping you fully invested throughout economic cycles and eschewing market timing.”
These principles aren’t new. There’s an enormous body of research, scholarship, blog posts, and war stories from the stock market to show that most of the time forecasts have little (predictive) value and that trying to see the future is a fool’s errand. Citibank agrees with that but attacks another classic error: having too much cash.
“In today’s new economic cycle, it is extremely important for investors with an average risk profile and return goals to hold a substantial core portfolio, allocated predominantly to equities with both growth and income prospects,” the bank wrote. Pitching its services, Citi told its clients to ask for a portfolio assessment to "highlight any excess cash."
'Building wealth over time requires planning and patience, not market timing'
Every time a crisis hits, many investors move into cash and safer assets, either actively selling stock or putting buying on hold, like stopping 401(k) contributions. This means that investors often miss the beginnings of a bull market and many heady days that end up having a huge impact on portfolios. A truism in stocks is missing the best 10 days will crush your portfolio, and those days are impossible to predict.
Earlier this year, the market, in the midst of the pandemic and related economic crisis, saw the best 100 days ever in the S&P 500. This is something defensively-positioned investors missed out on, but those following Citi’s advice to stay fully invested through economic cycles benefited and likely continued buying through the bottom — and getting the market at a cheap price.
Who would have thought that in a pandemic and record unemployment that the market would be at an all-time high? If there’s one thing this year has taught investors, it’s that (once again) they cannot see the future.
For Citi, this is the pitch — useful to anyone, not just its clients.
“Building wealth over time requires planning and patience, not market timing,” the bank wrote.
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Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.
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