What a crazy year we just went through! Now that it is behind us, we can take some truths forward for long-term investing:
- Bad times do end: the S&P 500 ended the year up over 16%, even though it dropped nearly 34% in the 23 trading days from February 19th to March 23rd.
- Time in the market matters: since 1950, the S&P 500 has ended the year positive 73% of the time. More often than not, the market goes up, even though going down is what makes the news.
- Stay invested: the total return for the S&P 500 over the last 30 years was a gain of +10.7% per year on average. If you were invested but missed out on only the 24 best percentage gain days over those 30 years (i.e., 24 days in total, not 24 days per year), that 10.7% annual gain falls almost exactly in half to a +5.3% annual gain.
- Diversification is important: I could go on and on here, but suffice it to say that the Covid-19 shutdowns showed the value of diversification in sectors (e.g., technology, energy, etc.) and in asset classes (e.g., large US companies, small US companies, real estate, etc.). Having all of your eggs in one basket, as we used to say, isn’t a good idea as you never know which way things will go.
What will happen in 2021? I don’t know, but every year things occur that can shake confidence in investing. But long-term money should stay engaged, diversified, and rebalanced regularly. This is what we do for our clients, and doing so has shown to be the winning strategy in the long run.