Many investors are gleefully saying goodbye to 2020, one of the most challenging years in history, and looking ahead optimistically toward 2021. President-elect Joe Biden will take office on Jan. 20 with a full plate of challenges, not the least of which will be the tasks of guiding the country through the final stages (hopefully) of the coronavirus pandemic, getting the economy rolling again, and shrinking the ranks of the unemployed.
Preparing your finances for the year ahead is one of the smartest things you can do right now, especially since there's no guaranteed timeline for the U.S. returning to normal. That means looking at your investments and your goals, and establishing stability for your financial life. And one of the most important sources of that stability in times of turbulence is a supply of good, hard cash.
Cash is king in 2021
The almighty dollar has great power in times of need. All the stuff you own can't buy you a gallon of milk at the grocery store, but if you have enough cash on hand, you won't have to worry about how you'll pay your immediate bills.
That's one reason why financial planners recommend that everyone have an emergency fund with enough cash in it to cover three to six months' worth of their expenses. And if you ever doubted the reasonableness of that advice, this past year should have shown you why a cushion that big is so necessary.
Tens of millions of Americans have faced a cash crunch this year. According to the Center on Budget and Policy Priorities, one in three adults are having trouble covering their expenses, between 7 million and 11 million children aren't eating enough because their households are short on money for food, and approximately one in six renters are behind on their rents.
While the bright lights of effective coronavirus vaccines are now shining on the country, it'll take a while before everyone's vaccinated and people can get back to something like their normal lives again. Pfizer says its vaccine won't be available on demand to the entire U.S. public until June or July. Moderna's COVID-19 vaccine received an emergency use authorization from the U.S. Food and Drug Administration late on Friday, which will add to the available supply. And other vaccines by AstraZeneca and Johnson & Johnson are still in the midst of their clinical trials.
Regardless, there's a long way to go until enough of the population is inoculated, and a very real possibility of further economic disruptions and more financial pain before the country begins its real post-pandemic recovery.
Why you still need cash
When all of the above is taken into consideration, there's one thing you can do to protect your financial health: Stash some cash in 2021. In case you're still wondering why, consider the following:
- Unemployment is still high.
- The pandemic is reaching new heights, with the numbers of daily new infections and deaths more than twice as high as during the worst of this summer's peak.
- There's no better protection for financial or personal crises than cash.
- The more liquidity you have, the better you're positioned to take advantage of buying opportunities in the stock market.
Be ready for investment opportunities
As many investors learned (or relearned) in 2020, taking advantage of market pullbacks is a great way to build your portfolio. Those who had cash on hand and the stomach to pull the trigger amid the bear market are now reaping rich returns. If, for example, you had bought one share of Zoom for $113.11 on March 2, your share would have been worth $402.35 on Dec. 17, for a return of 255.7%. Another big winner was Paypal: One share on March 2 was $112.86, while on Dec. 17, it was trading for $235.72 -- a 108.9% gain.
You can be sure that there will be plenty of investment opportunities in the upcoming year, as stock prices don't go straight up but tend to ebb and flow.
This will be a smart year to prioritize accumulating cash so you'll be ready in case of crises, and also so that you'll be in position to take advantage of market pullbacks. The coronavirus pandemic is far from over and the economy won't be in full recovery for quite some time. When the going gets tough, the tough make sure they have enough cash around, just in case.