2020: A year like no other! – Winners and Losers
Without a doubt, our most-read article is our annual ‘Winners and Losers’ summary of the year. Each year we try and identify the lessons we can take forward with us. In this sense 2020 has been very, very generous!
2020 proved to be one of the most tumultuous years in modern history, marked by a number of developments that were historically unprecedented. But the year also demonstrated the resilience of people, institutions, and financial markets.
Undoubtedly the onset of the COVID-19 pandemic was the major event.
Spring would see a spike in cases and a global economic contraction as people stayed closer to home, and another surge of infections would come during the summer.
For investors, the year was characterised by sharp swings for stock market values with most falling by over 30% in March as the pandemic worsened.
Lots of eggs in lots of baskets
Many of you will have heard me say that the first rule of investing is diversify, diversify, diversify! Diversification simply means that you own both the year’s Winners and Losers at an asset class level and but also at a company and industry level.
In the end, each year brings a new set of winners and losers – and history shows us we investors have been well served by owning a broad range of companies and markets (both UK and International) rather than trying to pick the year’s winners and losers in advance.
2020…
As you can see the kaleidoscope of investment returns continues with no two years the same…
Staying in your seat
Many news reports rightly emphasised the unprecedented nature of the health crisis, the emergency financial actions, and other extraordinary events during 2020. The year saw many “firsts” – and subsequent years will doubtless usher in many more. Yet 2020’s outcomes remind us that a consistent investment approach is a reliable path regardless of the market events we encounter.
Investors who made moves by reacting to the moment may have missed opportunities. In March, spooked investors fled the stock and bond markets, as money-market (cash) funds experienced net flows for the month totalling $684 billion. Then, over the six-month period from April 1 to September 30, global equities and fixed income returned 29.54% and 3.16%, respectively. A move to cash in March may have been a costly decision for anxious investors. Undoubtedly staying in your seat and withstanding the emotional urge to act was proven to be the correct course of action – when is it ever not!
You can see from the longer date range returns below every asset class has delivered a positive return over 5 and 10 years.
A Welcome Turn of the Calendar
Moving into 2021, many questions remain about the pandemic, new vaccines, business activity, changes in how people work and socialise, and the direction of global markets. Yet 2020’s economic and market tumult demonstrated that markets continue to function, and that people can adapt to difficult circumstances. Undoubtedly 2021 will add to the kaleidoscope chart (with new winners and new losers) but if 2020 showed us anything it is a solid investment approach, and a commitment to staying the course, will serve us well even in the most challenging of times.
Jeremy
(Source: Dimensional Fund Advisors/Vanguard)