Top Investment Lessons Learned from 2020, Ep #128

From a historically quick bear market to a speedy rebound, 2020 certainly took us on a wild ride. But there is a lot we can learn from this memorable year in the markets.

In this episode, we are reflecting on the investment lessons we learned over the past year. Check out the video below to watch a recap or listen to the full podcast above.

Optimists make better investments than pessimists

Historically, the S&P 500 returns 8-10% per year. Since markets go up in the long term, people who focus on the long-term growth of the stock and bond markets, as well as the growth of the economy, will prosper.

This lesson was put to the test in March of 2020 when we had the shortest bear market in history. Investors that stuck it out profited greatly. From March 23 to the end of 2020 the market went up an astonishing 68%.

Since no one has a crystal ball, buying in a bear market can be scary. This is why we recommend having an investment plan or a rules-based process in place.

If you lost sleep over or sold stocks during the decline then you need to reassess your asset allocation. How did you fare in the market decline? Were you an optimist or pessimist? Did you stick to your investment plan and wait it out?

Listening to the media is expensive

These days, the markets move at lightning speed. At this velocity, people often feel like they need to stay on top of all the latest financial news. However, listening to the financial media can hinder your ultimate goal. The media’s job is to sell advertising, not to help you reach your financial goals.

Even if all the uncertainty drives you crazy, step away from the sensationalist news. The number one predictor of long-term investment success is investment behavior, so teach yourself the discipline not to act on every little thing you hear on the news. Turn off your notifications and guard your time instead.

Watch out for investment fads

We all hear the rags to riches stories about the latest fads. Raise your hand if you have a friend who has struck it rich with Bitcoin lately. These stories can be so powerful, however, no one ever talks about the downside.

FOMO (fear of missing out) is real and we often want to jump on the latest bandwagon, whether it be Bitcoin, gold, or whatever the new shiny thing is. At the end of the day, the value of what you own is only what someone else is willing to pay you.

If you still want to jump on the latest bandwagon understand your motive and think about the impact of your investment on your financial plan. Don’t let it derail your long-term strategy.

Don’t underestimate human ingenuity and flexibility

If 2020 has taught us anything it is that we can be flexible. People are working and schooling from home when employers and educators previously thought that this wasn’t possible. In addition, we have seen entire industries change their business model. We have adapted to this new normal better than we ever thought we could.

Don’t miss out on the progress principle from this episode, listen all the way until the end!

Outline of This Episode

  • [1:38] Believe in the long term growth of the market
  • [7:14] Market timing is impossible
  • [10:26] Listening to the media is expensive
  • [13:21] Watch out for fads
  • [17:50] Don’t underestimate human ingenuity and flexibility
  • [19:52] There is something to be said for quality family time
  • [20:56] The value of diversification
  • [22:48] One big change you can make

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