Happy returns happen—especially when we separate ourselves from our investments.
Crash and Recovery
2020 saw the shortest bear market in history. From February to March, we experienced the fastest deep crash ever, with the equity markets losing more than a third of their value. From that point until the end of the year, markets more than recovered their losses, and ended up with substantial gains. The DOW 30 ended up somewhere around 7% for the year. The SP 500 index ended up somewhere around 16%. Many technology companies had larger gains than that.
All of this is predicated upon the Coronavirus, COVID-19. We had no way to know how serious this virus would be at the beginning of the year. Some of our investment managers accurately predicted the level of shake-up. You may be interested in what we wrote about and did:
Admittedly, early on, we could not predict the world government’s reactions to COVID-19. Then, for our standard portfolios, we rebalanced during the decline. We believe this was prudent, and we are proud of the results.
Social Unrest and Social Control
2020 Black Lives Matter protests brought attention to issues in dramatic ways. The other social issues that are omnipresent in our country today, including immigration and “Me Too” women’s issues, have not declined in importance, and are feeding a sense of unease.
In response to COVID-19, Americans have handed our governments more control over our lives than ever before. Around the world, the themes are the same—more government power and control fighting the virus. But these issues—social unrest and social control—are antithetical. For the near future, I can imagine we will continue to feel great stress and concern. The conspiracy theorists will gather more attention. And the other side will argue louder. The stressors are likely to increase, not decrease.
What We Can Do About Our Life Savings?
And what does this mean for our life savings?
An unsettled world may be the best place to make a long-term investment. Dramatic news can lead to inaccurate price movements. This may present our investment managers opportunities to “buy low.” We won’t know, of course, until after the years have passed what the numerous crises of our times mean for our portfolios—but we can approach the future with confidence.
Looking back on the news from 2020, we may feel like this was the worst year ever—or something like that. But looking at our investments, only once per year, we may come to a completely different conclusion altogether. As I mentioned earlier, the vast majority of measurements of equity market performance put the year 2020 solidly in the category of a “win” for investors who held on.
As difficult as it is, leave your long-term money alone. I believe that is the correct decision right now. With the short-term social unrest, governmental social control, and COVID-19 isolationism all coming to a head in 2021, we can expect more stress. And we can also expect opportunity. Happy returns happen—especially when we separate ourselves from our investments.