Today, we're talking about the top three lessons we learned in the investment markets in 2020. My name's Wayne Wagner. This is Market Vision.
Investing Lesson #1: The Value of "Dry Powder"
The idea of dry powder is having available cash to invest at a time when the market is significantly disrupted.
In March of 2020, we watched the fastest bear market on record emerge as stocks ultimately dropped 38% in less than five weeks. With markets moving down that quickly, it was important to be able to invest with cash rather than having to reallocate existing investments. Especially if those non-cash assets were already falling as well.
In the end, it really comes down to diversification. We diversify portfolios so that there are a range of risk profiles within your portfolio at any given point in time. This way, when markets become quickly disrupted and asset values drop, we have certain assets within the portfolio (dry powder) that we can readily deploy to buy low.
Investing Lesson #2: Buying on Fear
Let's face it. March of 2020 was a time of fear for all of us. With coronavirus breaking out, economies shutting down, airlines stopping transportation, and all of our vacations getting completely wiped out for the year, it was a period of massive disruption and fear.
The Oracle of Omaha, Warren Buffett, has often been quoted as saying, "The best time to buy is when other people are fearful, and the best time to sell is when other people are greedy."
Well, March of 2020 was a time of enormous fear. Markets dropped precipitously, and none of us knew where the bottom was or when it was going to be achieved. The idea of buying on fear can maybe be reframed just a little bit of buying into fear. When there's periods of massive disruption, when there's lots of fear, start inching into "riskier assets" as the asset prices fall.
Investing Lesson #3: It Helps to Have a PLAN and a PARTNER
If we learned anything in 2020, it was having a plan that keeps your long-term goals and focus during near-term disruption in the markets is crucial to your longer term success.
Secondly, having a partner to help you make strategic decisions in the midst of short-term chaos can be very valuable in keeping you on track with those long-term plans. If these lessons resonate with you and you're looking for a partner to help you execute your plan, we here at Vizionary Wealth Management are always here with perspective for the decisions ahead, and we'd love to talk.