Three Investment Lessons From 2020

If you spend enough time around the markets, you’re likely to see (and learn) a thing or two. While different bull and bear cycles typically take years to pan out, the speed at which the markets moved last year made for an extraordinary case study. Below are three investment lessons from 2020 that apply to a lifetime of investing – one’s you can extrapolate and apply accordingly.

1. Diversification

It may be hard to overlook and ignore the recent trends in the local markets. Tech has propelled and carried the markets for a number of years – if you’ve omitted this from your overall allocation chances are you’ve missed out. But investment gains can be a double edged sword – if you’re willing to ride the wave up you’re likely to be around when the wave crashes – pun intended.

As mentioned in this article by Jason Zweig, “investors had to survive the breaking point, a 34% loss in five weeks.” Needless to say, 2020 tested your nerve as an investor.

So in spite of this volatility, what worked? Diversification did. Here’s how other segments of the markets fared:

These aren’t meant to be product recommendations, rather, they highlight the importance of owning a bit of everything. As further stated in Zweig’s article, “A typical portfolio of 60% stocks and 40% bonds is down less than 1% for the year to date1.”

2. Market Timing

I’ve heard this one time and time again – “I’ll wait for things to settle down before getting back in.”

And like clockwork, by the time someone decides to “get back in,” it’s oftentimes too late. As dissected in this article by Vanguard, there is no crystal ball to investing.

Vanguard analyzed the volatility experienced in 2018 and applied different behavior patterns that many investors take: going to cash, going to cash and getting in later, and staying invested.

Surprise surprise: a portfolio that stayed invested throughout the course of the year clearly beat the other scenarios.

The main issue is that the turning point is not always so evident. As stated by the Wall Street Journal, “on March 23: Stocks bottomed out. As the death count from Covid-19 soared and the U.S. unemployment rate jumped to the highest level since the Great Depression, investors waded back in.” Not a pretty picture to say the least.

Rather than giving in to emotions around your finances, it’s usually better to properly assess your level of risk and comfort before volatility strikes. Create a plan and design your finances for the long term. Which brings me to my next point.

3. Having A Long Term Outlook

Circling back to Zweig’s article, “if you’d pulled a mini-Rip Van Winkle and started a six-month nap on Jan. 1, you’d wake up today1 and think not much had happened in the financial markets.”

Long story short: it all matters until it doesn’t.

One of the better features of today’s 401k plans is the fact that most participants get quarterly statements – not monthly and certainly not daily.

How about your real estate investments? As I discussed here, no one is blasting the value of your home or property every second of every day. You’re likely not getting appraisals done every month either.

Even if you’re retired, chances are your planning for a long term event (portfolio drawdowns typically take place over several years/decades).

So why bog yourself down with daily price fluctuations and news headlines? This isn’t’ to say it’s not important to stay informed. But if your future event is years or decades down the line, the price of ABC stock today isn’t likely to be all that significant.

Let’s play devil’s advocate a bit and expand on this “six month nap.” Let’s say it was a year-long nap. How would you have done? That same fund Zweig used as an example would have rendered 16.4% – not bad for a nap.

Identical twins don’t exist in the context of bear markets. They look, smell, and feel different. What’s not so different are the strategies you can employ to better prepare yourself for that next bout of volatility. In finance, it’s not always easy and oftentimes you’re the enemy. But having context for what’s going on and what’s worked in the past can be extremely helpful.


  1. “Today” and “Year to date” are referred to as June 30th 2020.

The Intelligent Investor



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