Personal Finance – One year later – Investment Losses?

Today we are going to talk about what happed in 2020 vs 2021 – We will not be discussing the COVID-19 situation, rather what happened to investments year over year?

So, let’s do a retrospective look at Mar 2021 vs Mar 2020.

To begin our review, let’s rewind to Mar 2, 2020 – At the time, we posted a popular article Investment Losses – Do you need a market “shock absorber”

Disaster Strikes – Mar 2020

If we look back at week of Feb 28, 2020, we saw a 5 day change of -12.36% in the Dow Jones and the pain was only starting. Based on the global pandemic and lock down efforts, we saw a significant decline in the Dow Jones index starting in Feb, 10 2020 at 29,398, which then hit a sizable low of 19,173 on Mar 16, 2020 in only 35 days (or 5 trading weeks). This was about the time that news headlines were screaming about the market losses. For example – Congress Nears Stimulus Deal With White House as Wall Street Suffers Rout – The New York Times (nytimes.com).

Moreover, there was so much uncertainty and apprehension within the world during this time period that the stock markets took a 34.7% cut in value in just over a month!!

Moving On From Disaster – Mar 2020 –> Mar 2021

As we mentioned in our follow-up article, What’s next for the Stock Market – How do you react? we reviewed the terminology of bull markets and bear markets and how to react to each instance.

Some key components we stressed were – Keep your fears in check, Ensure you portfolio is well diversified, If possible, hold and buy more, Do Nothing.

As we mentioned in that article there were only 3 paths forward: (Option 1) – Sell Everything, (Option 2) – Hold Fast, (Option 3) – Hold & Buy More. So let’s see what happened if you took each of these options.

Retrospective Look

If fear took over in 2020 and you were unfortunate to sell everything during Mar 2020, you likely saw a sizeable loss in the order of 20-30%. Don’t beat yourself up about it. Instead learn from it as a one time event, what not to do. This was a very unfortunate situation to be in as we saw extreme volatility for the weeks, into months.

The chart below highlights the extreme highs and lows on a daily basis – Truly a roller coaster investing environment. So that begs the question, only 12 months later, what is the Dow Jones average price? Currently, it’s 33,506 (intra-day), which means it’s recovered the 29,398 from Feb 10, 2020 and gained another 4,108 points or 12.26% in a year. If we take the trough to current value it has gained 1.74x the value of Mar 16, 2020. Either way, perhaps the best advice was to “Do Nothing” – Which can be the most challenging to do in times of turmoil.

Conclusion

So with our retrospective look completed, we see that despite a sizeable dip in 2020, the overall prospect of maintaining a long term horizon on investing is the best way to continue. Based on the past 5 years, we see that the market has gained 90.4% over this time period. This also includes the aforementioned 30% loss in Mar 2020, so we see that investing is not a straight line projection. There are periods of turmoil and uncertainty within each month, year and decade.

However, if you are able to control your emotions, invest consistently over time, we see the likelihood of positive returns to be a positive thing. Based on the chart below, we see that from 1926 onward, over a 15 year horizon, the returns are increasingly positive.

Source – 3 Charts That Show Why Investors Should Stay the Course Throughout Market Turmoil | Morningstar

As we saw in our blog post – Are you “Emotionally Ready” to invest? 😁😊😒😢😠 emotions pay a big role within investing mindset.

So now that we know what happens with our emotions, or mindset, when we either make money or lose money, we can focus our efforts on maintaining a positive or neutral outlook on investing – Maintain your gains through dollar cost averaging and don’t sell when losing your money – Don’t lock in your losses. Moreover, as Jack Bogle put it, “Don’t just stand there, do nothing” is sometimes the best policy – Don’t overreact and instead, give yourself some time to assess the situation fully – More to come on this philosophy in the future. A positive example of the worst market timing ever is provided here.

Thank you for reading – See you again in our next post – Stay safe and healthy.

Sincerely,

The Lab Manager

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