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Investable Themes for 2020 Stocks and ETFs

So, 2020 is finally upon us!  First of all, congrats to everyone for making it through another decade and hopefully you’re a decade closer to meeting all your financial goals.  With that being said, now is as good of a time as ever to plan for the future with some investable themes for 2020 stocks and ETFs.

In episode 131 of the Investing for Beginners Podcast, Andrew and Dave talk about quite a few major investment themes that are likely going to be prevalent throughout the course of 2020, so let me give you some of my thoughts on those themes as well!

Margin of Safety

Typically when we talk about having a margin of safety we’re talking about investing in stocks. And while I completely agree that we need to maintain this thought process, Andrew and Dave talk about the importance of preparing for your future outside of stock market investing, such as making sure that you have an Emergency Fund and are preparing for the short-term major purchases like a car, home improvement project, or anything else that might require some serious cash.

Regarding stocks and ETFs, this is a theme that is never going to get old!  Investing with a margin of safety will be a theme for 2020, 2021, 2030, 300,500 and forever and ever!

We really like to focus on finding companies that are undervalued or have a market price under their intrinsic value.  Doing so is how we can assure that our investments will eventually become properly valued and we can reap the benefits of doing the analysis on the front end to find great companies at a great price. 

I think that Warren Buffett says it best by saying “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Interest Rates

In 2019 we experienced three different rate cuts from the Fed and now sit between 1.5% and 1.75%.  From a very simplistic view, rate cuts are good for everyone that is receiving a loan and bad for those that are loaning out their money.

Rate cuts are a positive for:

Anyone investing in the market – when companies can go out and borrow money for lower than normal interest rates, they will be less hesitant to do so.  Lower interest rates might entice a company to borrow money when they normally wouldn’t have to grow the business, either by investing more money into their current business activities or potentially by acquiring a new company.  This is great for an investor if you trust the company to borrow money responsibly because now, they can look at opportunities that might’ve been a few years away.  That being said, if the company doesn’t borrow money responsibly, it could be a big problem in the future – but we don’t invest in companies with poorly run Finance groups, do we?! 😊

Small and local businesses – similar to the benefit that a large company receives, a small company now will receive the benefit of getting to pay a lower interest rate on any balances that they might have, variable mortgage rates, etc.  I think that this is even more impactful to a smaller company than it is a larger company because the smaller the company is, the closer that they are to not making it as a company, so each dollar saved is just that much more impactful.  The same benefit is received by anyone that is investing in a small company as well.

Anyone that needs to borrow money – this is very vague, I know, but I am specifically thinking for a car payment, personal loan, etc.  For instance, I legitimately reached out to my bank this morning to get a rate quote for a personal loan so that I could pay off my car and some student loans.  Depending on the improvement in the value of the interest rate that I am quoted will impact if I’m going to actually go through with it, but it never hurts to ask!

Rate cuts are a negative for:

Anyone with money earning interest – yes, this obviously means banks as they’re loaning out money to people and only receiving a much smaller interest rate, but this primarily means anyone putting their money in a bank because that’s the money that the bank is lending out! 

Yes, the bank only might be earning 3% on a loan from the public but they’re borrowing your money and giving you only 1.5% (and that’s if you’re in a high-yield savings account).  I’ve talked about this before, but I highly encourage you to take a look at the interest rate on your savings account and if it’s not at least 1.5%, then you need to start looking for a better option. 

My personal savings account paid me .01% interest, or $.10 for every thousand dollars in my account.  That is freaking pitiful! Now I am in an Ally account and I am getting a much higher, more competitive, rate for my savings account.

Overall, I think the major takeaway for 2020 is the same as any other year, and it’s quite simple – find a way to make the market work for you.  For 2020 specifically, I think you can accomplish this by making sure that you’re investing with a margin of safety with stocks that are being sold at a value much less than their intrinsic value. 

And don’t forget that building an emergency fund is investing too – it’s investing in your financial stability for the future.  If you spend every last dollar investing in the market, then when an emergency hits you’re going to have to sell some stocks to get cash for the emergency AND pay taxes on any gains that you might have.  That’s a lose-lose. 

Another way to take advantage of these trends is to make sure that you’re taking advantage of these lower rates.  If you have any high-interest debt, maybe instead of paying it off so fast you can simply look for a way to consolidate some of that debt under a new, lower-interest loan. 

Then you can keep investing because you lowered your interest rate on your loans and now your “hurdle rate” is lower since the APR is lower on those loans.

At the end of the day, the market is simply the market.  The more you know and the more you challenge yourself to think outside of the box, the better off you will be!