Investment Lessons from 2020?

The past 9 months have been among the most challenging and stressful many of us have ever seen.  Chief Investment Strategist, Steve Tuttle, shares key lessons learned from 2020.  These lessons are universal and timeless.  We hope they help you improve your financial situation.        

It is unlikely that we will see a year exactly like 2020 again.   In some ways, our lives have changed, perhaps permanently.  As an investor, what lessons can you learn from 2020? 

Here’s a few important investment guidelines that stick out the most:

Expect the Unexpected – You can’t predict the future.  No one forecast a pandemic.  Even if you had a crystal ball and had advance knowledge of the covid crisis, would you expect markets to be up double digits for the year?  Probably not.  The key is not to think about specific risks or plan for precise events that could move your portfolio.  Rather, expect that periodically markets will sell-off, and plan for a range of scenarios.  This requires that you have an appropriate investment portfolio that you can stick with in good times and bad. 

Markets don’t always move in the same direction as the economy – Many investors are confused by strong markets while parts of the economy are still shut down.  Instead of markets and the economy always moving together, as many investors assume, think of them like they’re linked by a fairly long rope.  Ultimately, they can’t go too far apart, but the two can move in opposite directions and at different times. 

Following the headlines is a disappointing investment strategy – Markets are forward-looking and move very, very fast. By the time the covid news and the impact on the economy were known, it was too late to sell.  Investment prices had already sold off.  When the headlines improved and things started to feel a little better, markets were already back near record highs.  Better to invest based on long-term fundamentals supported by data, evidence, and thorough research.    

The importance of a safety net – When the pandemic hit, investors everywhere raced to raise cash.  Investors who maintained a cash reserve for emergencies were in better shape to weather the unexpected volatility.  Cash doesn’t earn much, but it can really help in times of market stress.  2020 was a good reminder to have a cash cushion.

How we react to crisis has a large impact on our investments – If you tried to “cut losses” and exited the market with plans to invest again when things felt better, you most likely did so at a bad time and missed out on the rebound.  By the time vaccines were approved, markets were already back at highs.  Unfortunately, this is not uncommon.  Investors who react after market declines often find themselves on the wrong side of the market when a new rally begins.

Rebalancing is effective, but not easy – The stock market dropped sharply in March and then gained steadily for months afterward.  Investors who rebalanced or even did nothing during March or April are most likely better off today.  It is not easy to add to stocks when they are down.  Having a good plan and the discipline to act on it is key.

2020 was a year of major upheaval.  These takeaways will help you to be stronger, more prepared investors into the years ahead. 

We are here to help you make informed decisions about your wealth.  

Please discuss any ideas or questions with your advisor.

 

Steve Tuttle
Chief Investment Strategist

PLANNING AND ADVICE

IMPORTANT DISCLOSURE

Past performance may not be indicative of future results. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions. Any forward-looking statements, information and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain and actual events or results may differ materially from those reflected in the newsletter. Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice. A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel and operations are available upon request.

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