There is no simple way to summarize or explain 2020’s equity markets. By the end of the year the S&P 500 was up a very solid 18.4%, but that doesn’t begin to tell the story. Equity markets started the year on the soft side. Then came Covid-19 and stocks sold off sharply. March alone saw the S&P 500 decline 12.4%, and the first three months of 2020 were down 19.6%. But by the end of July, the S&P 500 had crept back into the black. And then came November, with an exceptional single month gain of nearly 11%, leading to a full year 2020 S&P 500 gain of more than 18%.
It’s easy to summarize 2020 under the heading of, “all’s well that ends well”, but unusual volatility can be very uncomfortable for many investors. Since it is very likely that equity markets will continue to fluctuate, equity investments may appear to be riskier than they are. The historical long term trend for equities has been essentially positive.
One key lesson from 2020’s volatility is the almost insurmountable difficulty of relying on a market timing strategy.
It is not practical to attempt to provide generalized advice as portfolio management is definitely not a “one size fits all” undertaking. Accordingly, most investors could benefit from adopting a strategy that has the potential to mitigate some risks. Avoiding equities all together exposes investors to substantial inflation risks, suggesting that a balanced approach, consistent with an individual’s risk tolerance, may be more practical.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA