2020 Investments: One for the Record Books!
What a crazy investment year. As I write this with just two weeks left in 2020, major U.S. stock market indices are at all-time highs. Think back to your market mindset just nine months ago. In late March, amid the pandemic panic, who would have believed the Dow Jones Industrial Average (DJIA) would make all-time highs before year-end?
And yet, that’s just what it did in mid-November.
I’ve seen a lot of tough financial times in my 35 years as a financial advisor: The one-day, 22% DJIA drop on Black Monday, October 19, 1987. The early 1990s savings & loan crisis. Asian and Russian currency crises in 1997 and 1998, respectively. A 2000 U.S. tech bubble burst, followed by 9/11 in 2001, and the 2007–2008 global financial crisis. Greek debt and Brexit woes after that.
Throughout, I’ve never seen a 2020-like stock market.
Most economists define a bear market as a 20% drop from a record high; and a bull market as a 20% rise from the bottom, ending in a new record high. Last spring, we achieved both a bear and a new bull in record-breaking times. We also saw the S&P 500 Index’s best November since 1928 and the best election-week return since 1932. The yield on the 10-year U.S. Treasury hit historic lows of 0.32% in March, while the U.S. long bond managed an all-time low yield of 0.99%. Today, yields for the 10-year and 30-year bonds are 0.95% and 1.70%, respectively.
So, what’s 2020’s investment lesson?
- Over short periods: Markets are a free-for-all. Who would have predicted the stock market would fall 34% in five weeks from mid-February to late-March, and then soar 67% shortly thereafter?
- Over the long haul: Stock markets climb (in fits and starts). For example, just before Black Monday in 1987, the S&P 500 closed at 282.70. On December 18, 2020, it closed 12 TIMES HIGHER, at 3,709 (not including dividends).
So, keep the money you’ll need soon away from the stock market. Invest the rest to earn long-term returns – but stay disciplined by sitting tight during the occasional, inevitable downturns.
May your 2021 be safe and prosperous. Good riddance to 2020.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.