This year has been one of the most challenging of my life, both professionally and personally. But I am so thankful for my family, friends, co-workers, and career. I am truly blessed.
I think what makes 2020 unique is that it’s been a universally difficult year for everyone. Whether you or someone you know has been affected by COVID-19, the economic downturn due to the nationwide shutdown, heightened stock market volatility, social distancing requirements and other challenges, most people will look forward to putting this year behind them.
However, even as the pandemic rages on and uncertainty grows, there are many reasons for investors to be thankful. The economy is recovering, the stock market has rebounded, and staying disciplined has paid off. There has never been a better reminder that keeping personal feelings and concerns separate from long-term investment plans is the best way to achieve financial goals.
At the start of the year when the new coronavirus was first discovered, it was unclear how widely it would spread or what its eventual impact would be. This naturally led to a sense of fear and even paranoia for public health officials, policymakers, and investors. With limited knowledge of the virus and few tools to combat it, many parts of the country were forced to suddenly shut down despite the personal and economic consequences.
Today, 8 months after the initial shutdown orders, much more is known about how the virus spreads and how to treat the disease, with multiple vaccines in the works. Much of the country is experiencing a “second wave” and there is still a tragic loss of human life. However, death rates have not accelerated alongside new cases, and many parts of the economy have been stable and growing throughout this period. Although we are not out of the woods yet, many of the worst-case scenarios have been avoided.
The challenge of balancing public health and economic growth is what has kept policymakers, business owners, executives, and investors up at night. Fortunately, the experience since the summer has shown that much of the economy has been resilient to COVID-19 and the shutdown. Overall, GDP has bounced back at a rapid pace after a historic decline in the second quarter. Many jobs have been recovered and many businesses have adjusted to remote or socially-distanced work. This is certainly a reason for investors to be thankful.
U.S. Business Cycles
In particular, the top market concern was that the shutdown would result in a downward spiral in activity and credit as the dominos began to fall. This was the case during the Great Depression when slowing growth was compounded with tightening credit conditions and poor fiscal and monetary policy. The stock market’s sudden decline earlier this year anticipated this possibility.
Fortunately, this outcome was avoided as the economy proved resilient, Congress passed the CARES Act, and the Fed activated emergency stimulus measures. So, while it appeared that the stock market recovery was “out-of-sync” with the economy, many investors were reacting to the stabilization in economic growth. The fact that the stock market has gone on to reach new highs is another reason for investors to be thankful.
Stock Market Performance
Finally, 2020 has been further proof that staying patient, invested and diversified are the best ways to manage uncertainty – even when it involves a once-in-a-century pandemic.
Asset Class Performance
Balanced portfolios helped investors to ride out the storm during February and March, and then helped to capture upside during the subsequent rally.
While there will no doubt be challenging times ahead, we can take solace in the fact that we persevered through a tough year. Keeping one’s personal fears and concerns separate from long-term plans is still the most important principle to achieving financial goals.