Summary: In this article, you will learn the best investments in 2021. Topics include: how to invest in 2021, trends for investors to know, the best stock market investments, income-producing investments and the best industries to invest in 2021.
How to Invest in 2021
Before we jump into all the details of the best investments for 2021, there are two important philosophies to keep in mind. First, the best investment strategy is a diverse one. Creating a broadly diversified portfolio can lower your risk of loss. A portfolio should include a mix of stocks, bonds, ETFs and cash across different industries. If one investment dips or an entire industry takes a nosedive, your whole portfolio won’t be affected and the loss won’t break your bank.
Second, make and stick to an automatic investment plan. Many investors make emotionally-driven decisions and pull their money out during a down market. Only to watch that market go back up and balance out. Staying in your investments for the long haul is usually the safest and best strategy.
2021 Trends for Investors to Know
The top trends for investors to know in 2021 include: fears of an economic recession come true and potential recovery timeline, an increase in corporate earnings, a climbing stock market, a new Presidency, and a comeback of international markets.
Widespread fears about a possible recession in 2020 came to fruition when the Coronavirus hit the U.S. early in the year. Starting off 2020, unemployment rates were at record lows and consumer spending was strong.
Heading into 2021, we are in the midst of an economic recession as COVID-19 continues to spread like wildfire across the nation. Many businesses, especially locally owned, remain closed or offer limited hours. Widespread fear surrounds the virus due to the huge resurgence in infections and deaths occurring in the fall.
The light at the end of this pandemic appears to be the approval of a COVID-19 vaccine. Next steps will be figuring out how to distribute the vaccine as quickly and effectively as possible. How long the recession will last depends a lot on how quickly people can become vaccinated.
Additionally, tariff wars between the U.S. and China are still simmering and will play a part in the economy’s health.
Earnings Pick Up Following Tough Year
Unsurprisingly, corporate profits plummeted in Q1 and Q2 of 2020 due to the pandemic. As COVID-19 infections started to decrease, businesses began reopening and people began spending more money. Thus, Q3 saw a huge rise in corporate profits (the most dramatic increase since 2009).
Unfortunately, corporate profits for Q4 are expected to be a lot lower as the Coronavirus continues to run rampant. Hopefully, the vaccination will improve consumers confidence in 2021 and improve profits moving forward.
The industry expected to see the largest profit growth in 2021 and over the next decade is in healthcare & social assistance. This trend is due to the large population of aging Baby Boomers, people living longer and more patients with chronic illnesses.
A New POTUS Will Bring Changes
With perhaps the most divisive presidential election in history, the results put an end to one giant unknown of 2020: Joe Biden will be the next President of the United States.
Sectors that are most impacted by elections and policy changes are health care, energy and financials. Those investing in these sectors should have a clearer picture of how a Biden presidency could affect their investments in 2021.
A Possible V-Shaped Recovery?
Halfway through 2020, Morgan Stanley Research and also RealWealth Members predicted a V-shaped recovery to the recession in 2021. Since then, this team of economists says that GDP is on track and is expected to grow 6.4% in the next year.
This midyear prediction went against forecasts of lower global growth. However, Morgan Stanley research is proving just how resilient our global economy is.
“The lesson from 2010, which we think also applies to 2021, is that the cycle usually wins out,” shares Andrew Sheets, a Chief Strategist at Morgan Stanley. “In short, we think that 2021 will see above-average risk-adjusted returns in equities and credit, and support a modestly above-average weighting to both.”
While the classic post recession recovery seems to be playing out, we’ve never experienced anything like the Coronavirus. There are a lot more uncertainties that exist in the short-term (next 3 months) rather than the long-term (next 6 to 12 months). Markets all across the board remain unstable surrounding COVID-19, stimulus measures and impending results of U.S. runoff elections in January. We expect to have a lot more answers in the second half of 2021.
Best Stock Market Investments in 2021
The health of the stock market in 2021 will depend greatly on the effectiveness and distribution of the COVID-19 vaccine. Stocks went up with more talk of a vaccination being ready before the end of this year. Investors will want to adjust their stock investments with the results of the presidential and Senate runoff elections. Interestingly, after a presidential election and if the government is divided, the better the stock market tends to perform.
Keep in mind that it’s far more important to consider where the economy and corporate profits are headed (up or down) rather than who works in the Oval Office.
Here are some of the best stock market investments in 2021:
- Amazon.com (NASDAQ:FB)
- The Trade Desk (NASDAQ:TTD)
- MercadoLibre (NASDAQ:MELI)
- Shopify (NYSE:SHOP)
- T.Rowe Price Global Industrials (RPGIX)
- Materials Select Sector SPDR ETF (XLB)
- MSCI Europe
- MSCI EM
- The Vanguard Total Stock Market ETF (NYSEMKT:VTI)
- The Vanguard Total International Stock ETF (NASDAQ:VXUS)
- Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL)
- Intuitive Surgical (NASDAQ:ISRG)
- Axon Enterprises (NASDAQ:AAXN)
- Verizon Communications (NYSE:VZ)
- Ford Motor Company (NYSE:F)
- General Motors Company (NYSE:GM)
Best Income-Producing Investments in 2021
Here’s a list of some of the best income-producing investments in 2021:
- Energy Pipelines
- Real Estate Investment Trusts
- Overseas Dividend Stocks
- U.S. Telecom Stocks
- Junk Bonds
- Tax-Exempt Muni Bonds
- Taxable Muni Bonds
Energy pipeline operators are an undervalued market, but produce some of the highest returns. Along with appreciation potential, investors can expect dividends between 5% to 9%. Because fewer people are investing in this sector, shares can be bought on the cheap and returns continue to rank among the best.
According to Rob Thummel, a portfolio manager and investor in this sector, “The U.S. needs energy infrastructure, and global energy demand should continue to grow; the sector is undervalued.”
Energy Pipeline Investments to Consider:
Real Estate Investment Trusts
A Real Estate Investment Trust or REIT is a company that owns income-producing real estate. Types of REITs can include commercial, office, apartments, warehouses, retail, hospitals and hotels. Individuals can buy into an investment trust as part of a larger real estate investment. Some types of REITs are performing better than others, with industrial and apartment REITs producing the best dividend payouts last year.
REIT Investments to Consider:
Overseas Dividend Stocks
Foreign stocks have been producing higher dividend returns than U.S. stocks. If the value of the dollar continues to weaken, international investments should be a good bet. Europe’s two biggest oil companies are making a comeback. Telecom investments in Canada and Asia are also doing well.
Overseas Dividend Stocks to Consider:
U.S. Telecom Stocks
The U.S. telecom sector comes with higher yields and lower valuations. Most of these stocks are inexpensive to buy compared to the potential earnings ratio. The outlook of U.S. telecom stocks for 2021 looks even brighter than last year.
5 U.S. Telecom Stocks to Consider:
Often forgotten, convertibles are a hybrid of stocks and bonds. Convertibles are designed to give investors the upside of stocks and the protection of bonds. There are two common types of convertibles: traditional bonds with a fixed maturity date and “mandatory” convertibles that are equity substitutes.
Traditional convertibles come with more protection, like bonds. Tech and biotech companies also offer convertibles because borrowing costs are so low. Mandatory convertibles often produce higher yields than traditional. The electric utilities sector offers mandatory convertibles to investors, with a typical maturity date of three years.
Convertible Investments to Consider:
Appropriately named “junk” bonds or high-yield bonds, are rated below investment grade. They come with a greater risk of default, but usually pay more than above investment grade bonds, which is how junk bonds attract investors.
In 2019, junk bonds produced one of the highest yield returns in a decade. There is such a thing as “better quality” junk bonds, which may give lower returns but less risk of default. Junk bonds took a big hit in 2020, but have slowly been recovering and look to continue that trend in the coming year.
Junk Bonds to consider:
Muni Bonds – Tax Exempt & Taxable
Municipal bonds were a bargain a couple of years ago, with investors enjoying returns between 6% and 11%. But these days, investors should expect a 2% to 3% return on muni bonds this year. While there are opportunities for decent returns, 2021 may not be the year for muni bonds to make a big statement.
Government issued treasuries are one of the safest investments out there. But the returns are a measly 1.5%, which is below the current 2% inflation rate. On TIPS or treasury inflation-protected securities, the average return is 2.3% on a 30-year bond. While this return is pretty unremarkable, TIPS protect against rising inflation and can be purchased at a good price.
TIPS to consider:
- iShares TIPS Bond (TIP)
- iShares Short Treasury (SHV)
- iShares 20+ Year Treasury Bond (TLT)
The 9 Best Industries for Investors in 2021
Businesses across many industries are having a difficult time staying above water since the Coronavirus pandemic. While some businesses will struggle to recover when the pandemic finally subsides, there are a number of industries set to thrive in 2021. Pent up demand will drive the comeback of these sectors.
The most substantial gains will likely be in what’s called “cyclical sectors”. In other words, sectors that perform well when the economy does.
Here are the industries expected to see the most growth in 2021:
Biotechnology is an industry that is focused on the manipulation of living organisms to create commercial products. Wait what? In simpler terms, the biotech industry makes products for four major industries: 1) healthcare (medical), 2) crop production and agriculture, 3) non-food (industrial) uses of crops and other products (biodegradable plastics, vegetable oil, biofuels), and 4) environmental uses.
The demand for personal protective equipment or PPE has been enormous throughout this pandemic. Unprepared to meet this unprecedented demand, hospitals and healthcare professionals have had to work with limited resources.
Clinics, hospitals, etc., will make sure they are well stocked in the future. And because most PPE has an expiration date, demand should remain steady.
Additionally, medical device companies should see large gains next year. Consider the medical device maker Boston Scientific (BSX) to see lots of growth over the next several months.
Because biotech makes products across four huge industries, many of which are growing, it’s not hard to see why people are looking to invest here in 2021.
Biotech Investments to Consider:
Technology in education has already been a growing sector around the world with expectations for a lot more growth in the future. As a former teacher myself, the public education system has been slower to bring in new technologies. A huge part of that is due to lack of government funding (and the other small part might be the push back from “old-school” educators). Then COVID-19 hit and everyone had to adapt quickly and take everything online. Suddenly, the expected growth of ed-tech has sped up and will continue to see significant growth in 2021. (Huge props to all the teachers out there working under these difficult circumstances.)
Additionally, eLearning technologies will expand with more options to take classes and learn remotely. Online certification and reskilling is expected to grow with more people choosing virtual learning over face-to-face when given the option.
Online meeting platforms have also seen a ton of growth this year and that’s expected to continue in 2021.
Stocks to consider in ed-tech, eLearning and online meeting platforms include:
Life & Health Insurance
A global pandemic that has infected millions of people and killed hundreds of thousands is naturally going to benefit the life and health insurance industries financially. With more and more people needing medical care, or at least the safety of having health insurance, it makes sense that life insurance is at the forefront of our minds as well.
Not to mention the explosion in demand for online medical services like doctor visits. This new trend would minimize the need for patients to visit their doctors in person, if possible.
Because we are currently in a pandemic that’s lasted much longer than most of us anticipated and an unknown recovery period, the forecast for health and life insurance looks good in 2021.
Life and health insurance stocks to consider:
Cannabidiol or CBD continues to be a popular trend. CBD is a compound found in hemp plants and is now legal in all 50 U.S. states. According to a report by Brightfield Group, since the nationwide legalization the market has grown 132%, and is projected to hit $22 billion by 2022.
Cannabis Investments to Consider:
Artificial Intelligence (AI)
One of the best investments for 2021 is technology, in artificial intelligence. Can you say Tesla? I don’t know about you, but I am mind blown by new cars coming out that drive themselves. The truth is, we’re only scratching the surface when it comes to the possibilities of AI.
Market experts predicted last year that the main drivers in AI would be 5G and cloud technologies. With technology continually changing and innovating, and a heated race between the U.S. and China in AI, this industry should remain a strong investment option in 2021.
The following sub sectors of AI are also expected to be fast-growing in 2021: video games, entertainment streaming services, online fitness, cybersecurity, dating apps, and eco-friendly technologies.
AI Investments to Consider:
Oil & Gas Exploration & Storage
It’s been a tough year for energy stocks with a huge drop in demand and supply chains out of whack. Shares in energy companies are expected to bounce back along with an increase in demand for oil and gas storage in 2021.
Oil & Gas Investments to Consider:
Real Estate Investment Trusts
Mortgage interest rates remain extremely low, making the real estate industry an appealing place to invest. Because borrowing money is so cheap right now, more people are choosing to buy real estate.
Real Estate Investment Trusts provide an easy way for people to invest in real estate, without having to buy a property themselves. Instead, you buy into a trust with other investors to fund a real estate project.
Co-founder of Fundamental Income in Phoenix, Chris Burbach recommends investing in net-lease REITs. Net-lease means a property is leased to single tenants, who pay rent and property expenses. He says they deliver higher dividend yields and better growth than typical REITs. Investors can also expect cash flow in certain markets, which makes REITs one of the best investments in 2021.
REITs to Consider:
Due to the incredible housing shortage in the U.S., experts are predicting that homebuilding stocks will have a strong 2021. Home sales and rental demand hasn’t slowed with the Coronavirus. In fact, it’s been the opposite story in many markets across the country. Even with the economy being in a recession, the housing market is going strong and should stay that way through 2021.
Consider investing in the following homebuilder stocks:
Leisure & Hospitality – Travel, Hotels & Airlines
Leisure and hospitality has been a hard hit industry during the pandemic. With the world essentially shutting down, visitors were no longer flying to hotels, Airbnb’s, casinos, and theme parks. Businesses in these industries have suffered tremendous losses in 2020, but are expected to come back in 2021.
Assuming the vaccination puts an abrupt end to COVID-19, the travel and airline industries should have a big year. Almost all travel plans were cancelled in 2020, so people are going to be itching to take those rescheduled vacations in 2021.
Remember that the health of these stocks is entirely dependent on the pandemic coming to an end in the somewhat near future.
Travel, hotel and airline stocks to consider this year include:
Environmental, Social & Governance Investing
Environmental, social and governance or ESG refers to investments that seek both financial return and social/environmental good to bring about social change. This type of investing supports sustainable, responsible and impact investing. Between 2005 and 2018, there’s been a 6,417% increase in ESG-based investing and the upward trend is expected to continue in 2021.
Examples of ESG or Impact Investments:
- Investor: Gray Ghost DOEN Social Ventures Cooperatief. Investee: Beam Money Private Limited – Targeted impact: Increase access to financial transaction services for the unbanked. Find their complete profile here.
- Investor: Calvert Foundation. Investee: Craft3 – Target impact: Increase economic opportunity in disadvantaged communities. Find their complete profile here.
- Investor: FMO. Investee: Clean Energy – Target impact: Increase renewable energy use and access in emerging markets in Asia. Find their complete profile here.
For more impact investment profiles across different sectors, visit here.
What to Do Next?
Understanding this year’s unique trends should make it easier to decide on the best investments in 2021. Whether you’re a stock market junky, looking for income-producing investments or interested in expanding into different sectors, smart investors should perform extensive due diligence with the help of a trusted financial advisor. With so many interesting opportunities out there, it’s an exciting time to invest your money and continue your path to financial independence.