The most prominent stock market benchmark - the S&P 500 ETF bundle (ticker: SPY) – closed at $321.85 on December 31, 2019. One year later, SPY closed at $373.88, an increase of just over 16%. Including dividends, it delivered an 18% profit to investors. The tech heavy NASDAQ Composite did even better – up more than 40%.
If you invested in the stock market in 2020, you made a pretty decent profit.
This investing stuff is easy. Not so fast. The COVID-19 pandemic upset the world in 2020, leading to rapid social change and economic upheaval. Economies were shut down and massive layoffs followed. Whole industries were closed for months.
As a result, investment markets gyrated wildly. To earn the 18% profit for the year, the stock investor had to endure a stomach upsetting decline of 33% in only 21 trading days – the fastest drop on record. With that much red on screens, it is a wonder that anyone stayed invested in ownership assets.
Staying the course, however, proved to be the right decision. Buying on the decline was an even better decision. Those that bought near the low point in March were up about 70% by year end.
Selling in March and parking the money in a savings account was a losing strategy.
At 2020’s average annual interest rate of 0.05% (Source: Federal Deposit Insurance Corp.), earning back a 33% loss takes 660 years. Parking investment money in a savings account is rarely a great idea; missing 2020’s 70% bounce to make 0.05% makes savings accounts look even worse.
The Roadside Scholar is a big fan of investing for the long-term employing diversified stock and bond bundles. 2020 was a good example of the benefit of this approach, hard as it was to ignore the flashing red arrows.
Roadside Scholar Tip: Time in the market beats timing the market. COVID-19 changed many aspects of life in 2020, but this investment philosophy remains true.
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