As I look again on 2020, it was undoubtedly one of the shocking, unpredictable, and risky years we’ve confronted in latest reminiscence.
As a reminder, from Feb nineteenth, 2020, to March 23, 2020, the S&P 500 fell 31.93%
In case you held a $5M S&P 500 ETF, that worth went to $3,403,500 within the blink of an eye fixed, a lack of $1,596,500. Not a simple factor to abdomen.
But amidst the uncertainty, I’m happy with some key calls and recommendation that proved correct throughout such a turbulent time. So, I’d prefer to take a second to replicate on what we at Monument obtained proper and the way these classes benefited our purchasers and will function steerage for anybody searching for stable wealth administration recommendation in 2025 (or at any time for that matter).
1- Concern and Panic will Sink You: Keep Invested Throughout Market Volatility
When the markets crashed early in 2020 as a result of pandemic, concern and panic had been in every single place.
However we urged purchasers to remain the course. In posts like “I Informed You This Was Gonna Occur” and “How To not Freak Out“, I emphasised the significance of sustaining a long-term perspective and resisting the urge to promote in periods of volatility.
Because the markets rebounded sharply later within the yr, those that adopted this recommendation had been rewarded. Staying invested throughout downturns is all the time simpler mentioned than finished, however 2020 was a robust reminder of why it’s so vital.
2 – Don’t Attempt to “Time” the Market: Take a Lengthy-Time period Perspective
All through 2020, we constantly highlighted the hazards of market timing.
Posts like “It’s Not About Discovering the Backside” and “Right here’s the Actual Value of Timing the Market” harassed that trying to completely time entries and exits usually ends in missed alternatives. The speedy restoration in 2020 was proof of this precept.
Buyers who had been consumed with ready for the “backside” or who hesitated to reenter the market probably missed out on substantial features. This expertise solely strengthened our perception {that a} disciplined, long-term method is the important thing to monetary success.
3 – Perceive & Keep away from Your Personal Behavioral Traps
Investor psychology performed an enormous position in 2020. The emotional rollercoaster of the pandemic led many to make rash choices. In “Why Present Sentiment Can Harm Your Plan” and “Traits of Brief-Time period Buyers“, I warned towards letting concern and market sentiment drive funding decisions.
Those that prevented these behavioral traps and caught to their plans had been higher positioned to profit from the eventual restoration. Emotional investing stays one of many greatest challenges for most individuals, and 2020 was a textbook case of why it’s vital to remain disciplined.
4 – Money is King: Financial Stimulus as a Market Driver
Within the publish “Hope From China, Fact About Stimulus, and Why Money Is the Final Hedge“, I mentioned the position of financial stimulus in stabilizing the markets. As governments and central banks worldwide launched unprecedented fiscal and financial interventions, it turned clear how vital these measures had been in fueling the market’s restoration. This perception proved invaluable for these making an attempt to make sense of the speedy rebound amidst ongoing financial challenges.
5 – Be Ready: Concentrate on Planning + Diversification
2020 additionally strengthened the significance of being ready for uncertainty.
In “Making ready Your Funding Portfolio for the Presidential Election“, I emphasised the necessity for a well-thought-out plan and a diversified portfolio. I additionally emphasised that an financial enlargement poised to final for a number of years was probably underway, positioning equities as a stronger asset class in comparison with shares and bonds. Since that article was written, the S&P 500 is up 79.6% and the iShares Core US Combination Bond ETF (AGG) is down 17.23%.
This recommendation was notably related as purchasers confronted each the pandemic and the uncertainties surrounding the U.S. presidential election. Diversification and planning proved to be a powerful basis throughout a yr when a lot felt unpredictable.
6 -Recession and Bear Markets Are Not At all times Linked
One of many extra fascinating insights from 2020 was that bear markets don’t all the time result in extended recessions.
In “Bear Markets Don’t At all times Imply a Recession“, I defined why market declines don’t essentially sign prolonged financial downturns.
This perception was validated because the economic system rebounded a lot sooner than many anticipated, regardless of the severity of the market crash earlier within the yr.
Why This Nonetheless Issues in 2025
Quick ahead to 2025, and whereas the small print have modified, all of the rules stay the identical.
The most effective technique remains to be this: keep calm throughout volatility, concentrate on the long run, keep away from emotional decision-making, forecast money wants, and be ready for uncertainty. Your intestine isn’t barometer.
Right here’s how I do know…
For the reason that market low on March 23, 2020, the S&P 500 has returned 191%. Now evaluate that to the purpose I made above in #5 stating the S&P 500 was up 79.6% from Oct sixth, 2020. In case you had been “ready for the market to recuperate” or “ready for issues to cool down”, you missed the unfold between a 191% return and a 79.6% return.
Learn that once more as a result of it must be a no-nonsense reminder that making an attempt to time the market is a shedding recreation.
Buyers who panicked and offered in 2020 missed one of many best rebounds in market historical past, the S&P 500 is up 195% from that March 23, 2020 low. So once more, have a correct money administration plan the place you pull money from portfolios when markets are up, not down, and keep away from making reactionary strikes primarily based on short-term concern.
The identical classes that labored in 2020 are simply as related at present—and so they’ll nonetheless maintain true for the subsequent decade. The truth is, I believe for my subsequent weblog I’ll revisit the 2022 blogs and write an analogous set of reflections.
Maintain wanting ahead.
