Hindsight is 20/20: Best investments of 2021

I always look forward to the first issue of The Wall Street Journal of the new year – to see where we should have invested for our clients, and where we’re glad that we didn’t. It’s fascinating to see the great disparity of returns among different investments, and sometimes this information can teach us a great deal. At the very least, it reminds us of the folly of trying to predict the short-term future.

Buying coffee would have been a great call in 2021, with prices jumping more than 76%. (I assume that Starbucks has already begun passing all or most of this cost increase along to its legions of devoted caffeine addicts.) Had I known that coffee would be the year’s best-performing investment vehicle I would have switched to hot chocolate, as cocoa prices actually fell more than 3% in 2021.

At least we were able to keep our clients out of last year’s worst-performing investment: the Turkish lira was down more than 44%. (By extension, I suppose that means Turkish coffee got a lot more expensive last year, which if you share my opinion of the beverage, is some form of econo-poetic justice.)

Among 2021 biggest moneymakers: equities. The Dow Jones Industrial Average was up 18.7% last year. The tech-laden Nasdaq Composite had actually led the way for most of the year but stumbled six weeks short of the finish line to post a 21.4% gain. And the S&P 500 was up 26.9%, its third straight year of double-digit gains.

Energy was the top-performing S&P sector in 2021. Real estate, information technology, and financials also showed above-average returns. Materials, health care, consumer discretionary, communications services, industrials, consumer staples, and utilities all trailed the field.

Rising interest rates hurt the bond market last year, with the Vanguard Total Bond index losing 3.9%. And with the Fed threatening multiple interest rate hikes for 2022, beginning as soon as March, there could be more tough sledding for bond investors this year.

Inflation spiked in 2021, which might lead you to assume that traditional inflation hedges like gold and other precious metals would have been the place to be. Instead, Comex gold prices actually fell 3.5% and are now down more than 11% from their peak in August 2020 – gold’s worst performance since 2015. Platinum (down 10.3%) and silver (down 11.4%) proved even worse inflation hedges in 2021. So much for conventional wisdom – and late-night infomercials starring William Devane.

So, what does 2021 teach us about investing? The very same lesson that almost every other year teaches us: that not everything makes perfect sense. If it did, we could all do a better job of predicting the future. I certainly trust that your investment program isn’t based on knowing the future, but on planning for it. And as we head down the road into another year, let’s again realize that the center lane typically gets us to our destination at about the same time as those folks in the passing lane, and a lot more safely.

Source: The Wall Street Journal, January 3, 2022.

Any opinions are those of Mike Brown Financial Group and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance may not be indicative of future results. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.

Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.