Building a Successful Portfolio for 2021
Zacks Investment Research | Dec 31, 2020 04:51AM ET
Stocks have done exceptionally well lately, with the S&P 500 index producing a double-digit return in the pandemic-plagued 2020 and up almost +70% from the March lows. But many investors didn't enjoy such strong returns in their own portfolios.
Why is that?
The simple answer is that they were in the wrong stocks because most investors typically invest without a clear roadmap. The rising tide of a broad rally will produce plenty of green arrows in most portfolios. But that is not enough to come out ahead of the market, which should be the goal of every investor.
It is reasonable to be optimistic about the investment environment in the New Year in light of the expected resumption of normal economic and human activities as the ongoing vaccination exercise reaches a critical mass. The policy bias from both the fiscal as well as monetary sides should also remain expansionary and favorable to the market.
In short, we can look ahead to some great investment opportunities in the days to come. But the New Year will also bring its share of challenges that could hold you back from fully benefiting from the opportunities.
Thus now is exactly the time to make those decisions to put your portfolio on a sound footing for the year ahead. I hope the ideas in this article will help you do just that.
This May Not Be For You
If you are someone who has a consistent stock-selection system that helped you come out ahead of the market in 2020 and the preceding years, then you probably don't need our advice. Feel free to stop reading at this stage.
With the rest of you, I would like to share the investment process that we rely on here at Zacks, which makes use of 5 different factors to build a winning portfolio. Each one of these factors individually will help you pick good stocks. But putting all of them together gives you a significant edge over others in stock market investing.
This process lies at the heart of our Zacks Top 10 Stocks which has produced strong returns in recent years. The portfolio beat the market by a mile in 2020, returning +93.47% vs. the +12.02% for the S&P 500 index.¹ In past years, the portfolio returned +25.94% in 2019, +13.95% in 2018 and has maintained an annual average return of +27.69% since its inception in 2012. And now, Zacks Top 10 Stocks for 2021 is about to be made available.
A random selection of good stocks, without an overarching outlook for the market, will not give you the desired results. The portfolio is essentially the execution of your outlook for the market. For the Top 10 Stocks for 2021, we started with the market outlook and then used these factors to build the portfolio.
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