The Most Important Investor Lessons of 2020, Looking to 2021

Written by
male investor businessman

Investors and everyday Americans faced incredible challenges in 2020 including the COVID-19 pandemic, a deep recession, bear market crash, social unrest, and a heated presidential election. Even as we can see the light at the end of the tunnel, with vaccines on the way, the pandemic continues to rage on and millions of Americans still find themselves unemployed.

2020 taught us: Stay invested and stick with your plan

From an investment standpoint, however, it’s clear that the most important lesson of 2020 has been to stay resilient. Despite ongoing problems in the world, those who stuck with their financial plans, stayed invested in their portfolios, and resisted the urge to overreact to headlines have been rewarded throughout the recovery.

Where we’ve been and what comes next

Of course, the challenges faced early in the year can’t be overstated. As the pandemic began to spread across the globe in January and February, government officials were forced to shut down cities and states. This effectively put business activity on hold and led to the worst economic crash since the Great Depression. There were even fears that a domino effect of bankruptcies might lead to an even deeper depression.

Chart: U.S. COVID-19 cases. The first wave (blue) was followed by a summer wave and a year-end surge (orange).

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Sources: Clearnomics, Johns Hopkins, December, 2020

For Americans directly affected by the shutdown, the effects are still being felt today. Government action through the CARES Act, including stimulus checks and the Paycheck Protection Program certainly helped, but this support has long since run out.

Fortunately, much of the economy has been resilient and the worst-case scenarios did not occur. Not only did many businesses adapt – by shifting to remote work, focusing on online sales, implementing safety measures, operating at reduced capacity, etc. – but some industries such as technology have thrived. Many economists and Wall Street forecasts suggest that the economy and corporate earnings will return to pre-pandemic levels at the end of 2021, representing two lost years of growth. While bad, it could also have been much worse.

What’s the jobs outlook for 2021?

Striking a balance between business activity and public health has allowed many companies to continue operating. Although over 22 million jobs were lost during the early months of the shutdown, more than half have now been regained. The speed at which jobs were recovered is due partly to temporarily laid-off and furloughed workers being recalled to their jobs. Some industries such as the restaurant and hospitality industries however have been impacted where many are still unemployed with further uncertainty ahead. 

Chart: More than half of the jobs lost during the recession have been regained

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Sources: Clearnomics, Bureau of Labor Statistics, November 2020

This economic resiliency propelled the stock market soon after the recession began. Initially, it seemed as if the stock market was “out of touch” with the realities of the pandemic and economy. However, markets and investors are always forward-looking. They are not always justified in their optimism, which is why crashes and corrections can occur abruptly. In this case, however, the market perspective that the economy could recover was validated. Additionally the market likes certainty and dislikes uncertainty so as we have received more news throughout the year whether is was improving Covid numbers, the election results regardless of the outcome, or information on the vaccine the market responded positively. 

Chart: This chart shows the S&P 500 stock market index across three timeframes. Stocks recovered from their lows very quickly and have since reached new all-time highs.

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Sources: Clearnomics, Standard & Poor’s, December 2020

What should investors remember  in 2021?

As 2021 approaches, it’s clear that there are still many challenges ahead. The second half of the recovery – i.e. the remaining 10 million jobs that are still lost – may take longer and be more difficult. Over 5.5 million Americans are still receiving unemployment benefits each week, many of whom are in sectors such as retail, dining and hospitality that have been hit hard by reduced capacity and social distancing. Although vaccines are now being rolled out across the country, it may be some time before these businesses find relief.

Additionally, the stock market has risen dramatically in just a short period. While this is welcome news and benefits portfolios, investors ought to stay disciplined and expect periods of uncertainty over the next year. The best approach, as always, continues to be diversifying and keeping a level head in the face of market volatility. Regions or Sectors that performed well in 2020 (e.g technology), may not be top performers in 2021, where other sectors that underperformed (e.g Non US Stocks, or financials) may bounce back in the coming year. 

Staying invested even when markets are volatile is generally a good investing behavior. Regular contributions through market movements allows investors to take advantage of dollar cost averaging no matter the amount of the contribution. MoneyLion members have an easy way of doing this with Auto Invest.

In 2021, a consistent, steady plan matters

At this point in the crisis, it’s clear that investors who stayed resilient had a better chance of riding out the storm. This is a lesson that history has shown time and time again, and is one that should not be forgotten as investors prepare for 2021 and beyond.

Stick to your plan in 2021 with MoneyLion

When you invest with us, we’ll help you set up an automatic investment plan that works for you and invest it in a managed portfolio based on your preferences and an auto invest settings that allows you to add funds on your schedule. It’s simply a smart, easy way to invest! And you can start with as little as $5.

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