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The year 2020 will definitely be written in history books, medicine books, government policy books, and definitely in the upcoming books and Hollywood movies as the year that no one expected. The black swan of black swans event. And while that book or movie hasn’t ended yet, we can already look into some lessons learned, thoughts, and ideas about our money, investments, and more.

As we dwell and spend time with our families at the end of 2020, many may have already forgotten the stock market crash of 2020. It was the quickest crash and recovery in recent history, with a quick market drop of about 35% to now the stock market showing a positive 6%-15% for the year or so, depending on which index we look at. See the below chart for the two main indices of the US market, the S&P 500 (SPX) and Dow Jones (INDU) Indices.

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While the pandemic was a major surprise, in investing this market behavior is NORMAL, actually it is EXPECTED. Let me repeat it, Normal & Expected… If the stock market didn’t do such, time after time, it wouldn’t provide the return that it does. Everyone that invests needs to know that this is normal and expect it time after time. This makes a huge difference of preparing yourself for what investing means, as well as how important it is to stay the course and stick to your plan.

Back in March 2020, at the high of the pandemic panic while we still didn’t know much about it and when the market severely dropped, we shared the below chart about historical market drops and the following recoveries. As we pointed it out then, as well as now, we can see that there’s always a recovery that follows a drop. What we don’t know is the timing of it, but for most of our clients that shouldn’t matter. It may take a couple of months (as it did this time) or 24 months or sometimes even longer, we just know that the recovery always happens. That key understanding is very important in sticking with the long-term plan you have and not making quick and emotional changes during the very emotional times of whatever panic of the time.

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Just to point out from above, this downturn was one of the shortest in history, the drop taking just a couple of months and the full recovery a few more months after that. That’s not to say that the market may not correct again looking into 2021 or beyond, but more of the point that when it feels the darkest out there, either economically, politically, or even during one of the worst pandemics, the stock market may do things that are not expected. As you can notice from the first chart, the market started a recovery while the pandemic was still raging and thousands of people dying daily all over the world. The stock market looks ahead at different indicators, that of the monetary authorities, the governments’ responses, and even the companies’ responses to the crisis. The thought here is that you may think the market should do something else when in actuality it does something completely unpredicted. As it just did…

So, what’s ahead for 2021 and beyond? If you haven’t gotten the above message, is that no one really knows with precision. With so many moving parts, government responses, Federal Reserve programs, companies adjusting their operations, and even people getting used to ‘Working From Home’, anything is possible. But the tendency, especially with the coming vaccines, is that we should get some return to normalcy soon. The new normal may look different from what we left in 2019, but the economy and the people will sooner or later adjust. For our investments, it is OK and actually expected to not know everything that will happen, but know that markets sooner or later will correct again, and then over time recover, but they’ll handsomely compensate the holders for the risk taken and faith put in the overall system.

What I think is even better is to repeat or display the lessons that we all should have learned or refreshed with the Year 2020. Below are just a few of them:

  • Have a bigger emergency fund. We’ve recommended 3-6 months of your expenses, but it shows that maybe you’d want to lean on the high side and if possible even more. Emergencies happen all the time; sometimes they’re small and manageable, and sometimes global pandemics.
  • Just because it hasn’t happened before or to you specifically, it doesn’t mean it won’t happen. This one is more of to be prepared for anything and have the investments appropriately risk-managed, not taking unnecessary risks and diversifying as much as possible. This is our rule #1 with our investments.
  • You may see something in the overall economy, but the stock market may see something else. 2020 was a big proof of this, showing that the stock market could go up during one of the biggest crises we have had in generations. Be careful making investing decisions based on “what’s happening out there".
  • The government responses are also unpredictable. In a world of fiat money, where pretty much money can be printed at will by the world reserve banks, betting that something will go down in price could go against that. The bigger risks could even be from printing too much, but we’re not there yet. The point is something may not go down in price, but its purchasing power may, i.e. the dollar can buy less and less (thus, inflation).
  • The final lesson that many seasoned investors and the world’s ultra-wealthy already know is that the markets go up over the long run; you just need to know how to stay in the ‘game’ long enough to have the returns while having a plan that won’t destroy you. For us, that means diversification and having a long-term view of the market. Looking at it over the short term and getting emotional with your money is the biggest mistake one can make, but it happens all the time and by most investors. Don’t be one of them.


Lead Advisor, InvestEd.

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