In early 2020, as the COVID pandemic spread, the world effectively shut down. By March, the S&P 500 had dropped nearly 20% in value.1 In an essay around that time, “Righting the Ship,” I addressed the question everyone was asking: When will we be able to get back to normal?
While I didn’t make any forecasts, I believed then that the public and private sectors would come together to create solutions to this unprecedented challenge. That’s exactly what has happened.
The question I want everyone to ask is: What lessons should we take from this past year?
When I think about what got people through a year of uncertainty, it’s human relationships. FaceTime and Zoom helped keep families, friends, and coworkers connected even when we needed to be isolated. And many investors persevered because of the strength of their relationships with those advising them—independent advisors, consultants, or the staff at an institutional fund. There are many financial advisors who are skilled at helping clients through the tough times. Those advisors have rarely been needed so much.
Because investing is inherently complex. The job of a financial advisor then is to handle that complexity so their clients don’t have to. Too many people, left to their own devices, end up bailing out of markets when they shouldn’t. Investing is largely about making informed choices, and most people would benefit from having a professional on their team. A financial advisor can help you develop solutions you can stick with and keep you on track during the inevitable times when markets are down.
And quantitative analysis represents only a portion of what the financial advisors we work with do. They also devote time to calming anxious clients and helping them stay disciplined when things are tough. They know from experience that a long-term investment approach—one you can stick with through thick and thin—is what enables people to best meet their life goals.
This past year has reinforced why that matters. At the bottom of the market, in March 2020, a lot of investors thought about getting out. But, by the end of the year, markets had not only rebounded, but they were in positive territory. In the middle of a global pandemic, many investors still believed in the power of human ingenuity to solve problems and stayed invested. And those who stayed true to their investment philosophy—and stayed invested—were rewarded. Those who got out at the bottom of the market—and stayed out—lost big.
Today, markets have largely recovered—and then some. Investors who stayed invested should be back on track to achieve their financial goals. For those who did get out at the bottom and stayed out, I hope what happened reinforces the importance of having a good long-term plan.
We’ve said the same thing after every major crash, and we’ll say it again after the next one. The alternative to having a long-term plan is trying to time short-term market movements, which has more in common with gambling than investing.
So how do we keep everyone moving forward? By staying invested for the long term. I find comfort in believing in the market—especially during difficult times—because it represents the power of human ingenuity. Of people coming together and finding creative ways to push ahead. Investing in the broad stock market means putting your money behind thousands of companies representing the passion and skills of millions of hardworking people working to make their lives better.
What did I learn from this year? That those of us who know there is a better way to invest must do everything we can to share these ideas. When the next crisis strikes—and it will—we want our loved ones to be prepared with a philosophy they can stick with. So we know what we want to do and let’s start now.