As we look back at the year 2020, I believe there are great lessons that can be learned as investors that show the importance of having a long-term, goal oriented financial plan. None truer than the only certainty in the world is uncertainty, which as we have seen over the course of 2020, cannot be predicted.
Looking back at the end of 2019, no one could have predicted what was going to happen to the world in 2020 and the economic trauma that would follow. In addition, no one could have predicted that the equity market was going to go down 34% in 33 days, followed by a complete recovery reaching all-time highs just a mere six months later1. This all happening while the news surrounding the coronavirus and the economy was and continues to be dreadful. Again, no amount of economic commentary and market forecasting could have prepared us for the dramatic events like we saw last year.
With all of this, there are valuable lessons that can learned
1.This year, and as history has shown us, the speed and trajectory of market recovery often mirrors the severity and depth of the previous decline. Not only that, but the equity markets often resume its advances and reach new all-time highs, consistently before the economy fully recovers1.
2. If you made the detrimental mistake of getting out of the markets, only to try and predict when to get back in, you more than likely may have missed a very significant part of the market’s advances (especially if you were waiting to get back into the market once you heard positive news surrounding the economy – which you could still be waiting to hear).
3. In the long run, this can derail your overall retirement plan and validates what I believe…that the market cannot be timed. Learning this valuable lesson will set you up for success, especially when facing uncertainty moving forward.
The extreme volatility faced this year shows it is best to stay invested, which I know you are thinking that it is easier said than done. If you believe, like I do, the only true way to be a successful investor is to maintain a long-term approach, then stomaching the short-term volatility is the way to get there. To do this, one must have a financial plan that uses their investments as a tool to reach their long-term financial goals.
If you think about it more simply, if your goals have not changed, then why should you change your investing strategy? I believe that Nick Murray said it best “The dominate determinate of long-term, real life investment returns is the behavior of the investor themselves.”2 Meaning your human behavior can be your own worst enemy when it comes to investing. With a plan in place, it becomes much easier to stay focused and not panic in times of extreme volatility like we faced.
I will leave you with one last thought, although many have heard but for some reason do not associate it with your financial future, which is failing to plan is planning to fail. Through everything we have endured this year, none of the lessons learned matter unless you have a long-term, goal-oriented approach to investing for retirement. If you do not, then you are setting yourself up for failure.
What we offer is a cup of coffee and a second opinion. You can give me a call or send me an email to learn more.
Murray, Nick, Nick Murray Interactive (NMI), Volume 20, Issue 10, October 2020
Murray, Nick, Around the Year with Nick Murray, 2016
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