Long-Term Investing Lessons from 2020Submitted by Reby Advisors | Certified Financial Planners | Danbury, CT on September 18th, 2020
By Bob Reby, CFP®, September 18, 2020
This article was originally sent to Reby Advisors clients on September 15, 2020.
I hope that you and your loved ones are safe and healthy. I thought this may be an appropriate time to put this year in perspective, relative to historical events, for let’s just say, the last 100 years or so.
We have all heard of teachable moments, those situations or experiences that occur when we can learn something and apply it to our lives. Well, the period from mid-February to the current day, contains just about everything you and your loved ones need to know about what it takes to be a successful long-term investor.
Let’s look back to mid-February, we had an economy that was healthy and growing, unemployment was hitting record lows, and the broad stock market was hitting all time highs (measured by the Russell 3000 index). Then out of nowhere, comes a dramatic, life threatening pandemic, which essentially no one saw coming. A “Black Swan” event, so to speak.
While events like these can have a huge impact on the markets and the economy overall, they should not always be viewed as negative. Some can have a positive outcome, like the introduction of the internet in the mid 1990’s. Nobody saw that coming, yet it did change many things in an extremely positive way (Nick Murray, Sept 2020).
To that point, as the legendary investor Peter Lynch once said, “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”
Earlier this year, we saw the U.S. economy essentially close, and unemployment spike to record levels. As equity markets went down violently and rapidly, the Federal Reserve made it clear that it was committed to support the economy with any liquidity necessary. As a result, the equity markets proceeded to reverse direction and have the best 50 days of all time and best 100 days since 1933! As a reminder, equity markets, of any kind, have long been an accurate forecaster of the economy (Nick Murray, Sept 2020).
A few important learning points here are:
- Bear markets end.
- The subsequent recovery is often as quick and powerful as was the decline.
- Neither the decline nor the recovery could possibly have been timed.
- The equity market tends to recover long before the economic picture clears.
In summary, I want to remind you that markets cannot be timed. Also, declines of the recent size and magnitude are not uncommon, this being the 5th major decline in the past 35 years. I also want to reiterate that a well-diversified portfolio, one that includes equities, is essential to lifestyle sustainability and legacy planning. More importantly, a well thought out conservative portfolio, that is aligned with your family’s goals, increases the probability of sticking with your financial plan long-term.
I will end with a quote from Nick Murray, one which you may have heard me mention before, “Optimism remains the only Realism."
If you would like advice to help you navigate through this recent financial storm and pursue your goals, please don’t hesitate to reach out to Reby Advisors with questions or concerns.