The last twelve months have been interesting, to say the least: lockdowns, a freefalling economy and market, and the awkward handshake/fist-bump/friendly wave.
With all that has happened, I think it’s worthwhile to reflect on the lessons we’ve learned since March of 2020.
Stay invested in the market and don’t invest based on emotions. At one time or another last year, the thought of “this time’s different” or “should I sell out and salvage what I can?” crossed every investor’s mind. With a global market decline of 35% from February to the market low on March 23, and a lockdown of the global economy with no end in sight, I would be hard-pressed to find an investor who didn’t ruminate on these thoughts for at least a moment or two.
Here at HFG Trust | Prime Wealth Management, we were struggling with the same questions and emotions. We had no crystal ball to peer into the future, but regardless of the investment climate, we try to practice what we preach: Invest in an appropriate portfolio based on your financial plan, stay invested for the long term, and don’t make investment decisions based on emotion. With this philosophy in hand, we decided to rebalance portfolios during the drawdown, generally purchasing equities from fixed income. With the exceptional rebound in market returns over the last twelve months, in retrospect it seems like an easy decision; but at the time, it was gut-wrenching.
Some investors and pundits on TV looked like heroes as they sold on the way down. However, a majority of these investors are now still waiting for the “right time” to reinvest in the market, resulting in being underweighted in their portfolio and missing out on a large portion of the 80% increase from market lows led by US Small Value companies returning +120%.
Ultimately, no crisis or pandemic will look the same. When some say “this time it’s different,” they are correct. However, the market and economies are resilient overall; and the adaptability of companies and people results in responses that are both different and meaningful. This doesn’t mean there won’t be short-term volatility, but over time, investors are rewarded by staying disciplined.
Kevin Floyd, CFA, CFP®, AIF®
Director of Investments, HFG Trust
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