December 29, 2020

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A Look Back at Q2, 2020

Lockdowns and Job Losses

2020 has been a year to remember. Industries have adapted to changing consumer habits, markets have fluctuated, and people have spent countless hours on Zoom (ZM). Over the next week, we’ll break down important events that took place during each quarter of the year. Today, we’re taking a look at Q2 of 2020.

The second quarter of the year was one for the history books. At a certain point during Q2, 95% of Americans were under stay-at-home orders. These measures, put in place to curb the spread of COVID-19, caused shockwaves across the economy. Large and small businesses reeled and 20 million jobs were lost just during the month of April. In June, 2.5 million jobs were added, but unemployment levels remained alarmingly high.

To bolster the struggling economy, the Federal Reserve dropped interest rates to zero. The central bank also announced it would purchase investment grade and high yield corporate bonds, and put unlimited quantitative easing measures in place. Additionally, the Federal Government rolled out its largest fiscal stimulus initiatives since World War II, including forgivable loans for small businesses and $1,200 checks for eligible citizens in the US.

Volatile Markets

During the first quarter of the year, investors watched the fastest 30% market decline in history. Then in Q2 markets made their most significant 50-day comeback on record. The S&P 500 finished the second quarter 20% higher, marking the index’s biggest percentage gain since the fourth quarter of 1998. The Dow rose 18% and the Nasdaq climbed a remarkable 31%.

Although the IPO market was almost nonexistent when Q2 began, it picked up steam as the quarter went on. Several large companies, including Warner Music Group (WMG), ZoomInfo Technologies (ZI), and Albertsons (ACI) made their public debuts.

Grappling With Racial Inequality

Spring of 2020 will also be remembered as a time of reckoning on race and calls for social justice. After George Floyd was killed in police custody in Minneapolis, protests against police brutality and racial inequality took place across the country.

Corporate America made some changes during this time. Quaker Oats (PEP) and Mars removed racist imagery from packaging for their Aunt Jemima and Uncle Ben products. Amazon (AMZN) and Microsoft (MSFT) suspended the sale of their facial recognition software to police departments as this technology has been criticized for showing racial bias.

Disparities still exist between Black Americans and their white counterparts in employment, wealth, education, home ownership, healthcare, and incarceration. Here at SoFi, we renewed our commitment to becoming a more inclusive and diverse workplace, implementing company-wide bias trainings and donated $1M to organizations working to fight systemic racism.

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Investing for the Long Term: Retirement Planning

Time Horizon and Risk Tolerance

2020 might go down in history as the year of canceled and changed plans, but it is almost over and 2021 is within sight. Kicking off 2021 with a few simple money management plans is a great way to turn over a new leaf, or build on previous saving successes. This week in our newsletter we’ll be bringing you a series of easy money-management tips to help get your year off to a good start. Today, we’ll discuss a few easy ways to save for retirement.

An important first step in making a retirement saving plan is considering your timeline. If you are young and you plan to work for multiple decades before retiring, it probably makes sense to put a majority of your assets into riskier, higher-yield investments, like stocks. A longer time horizon not only gives your investments a chance to grow, but it means that you also have the time to ride out market downturns that may occur along the way.

On the other hand, if you are planning to retire soon then you have a shorter time horizon. A shorter time horizon means you may prefer to hold a greater proportion of less risky assets like bonds or cash and cash equivalents. These tend to be less volatile, so if the market drops, they are unlikely to drop with it.

Determine After-Tax Investment Returns

Be sure to calculate your after-tax rate of investment returns when planning for retirement. It’s probably most realistic to expect a required rate of return of 10% or less before taxes. As you get older and your portfolio becomes lower risk, this return will likely go down. This is because low-risk portfolios tend to be composed of low-yielding securities.

Depending on what type of retirement account you use, your investment returns are likely to be taxed. To have a clear picture of your income during retirement, it’s important to calculate the actual rate of return on an after-tax basis. A tax professional will be able to help you understand your specific situation.

Make a Budget and Expect the Unexpected

In planning for retirement, it’s also also a good idea to think about how much you plan to spend as a retiree. Often when people create retirement budgets, they expect to spend 70%-80% of what they spent while they were in the workforce. However, each person’s needs are unique. If you hope to travel or make big purchases when you retire, it’s a good idea to budget for those to make sure you have the funds to make your plans realities.

It is also a good idea to leave a cushion in your retirement budget for unexpected expenses, like medical bills or repairs to your home or car. You might also decide you want to purchase a new home or help pay for a child or grandchild’s education once you are retired. Setting aside some money for unexpected expenses will help you be ready for all of life’s twists and turns.

More Long Reads about Investing

Financial Planner Tip of the Day

"One of the most important predictors of your returns is the length of time you’ve invested in the stock market. While it’s difficult to predict what the market will do in the near future, you can get a better sense over the long term. When you invest and let your money grow, it has the chance to weather short-term ups and downs and grow over time."

Brian Walsh, CFP® at SoFi

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