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2020: A Review Of An Unprecedented Year

The Blue Water Team

With 2020 marked by a number of historic occurrences, including a pandemic, civil unrest, and a contentious election, markets fluctuated significantly throughout the year. However, despite the turmoil, markets ended the year with historic returns. Similarly, fixed-income markets performed very poorly during the first quarter of 2020, but recovered to strong positions by the end of the year. Dimensional Fund Advisors (DFA) offers the following lessons learned:

Markets adjust quickly to data 

Market fluctuations throughout the year demonstrated the agility which allows markets to respond quickly to new information. From falling more than 33% in just 5 weeks in February and March 2020, for example, markets rebounded more than 17 percent in just three trading sessions in late March as more positive information about the pandemic became available. In addition, the willingness of markets to recover quickly despite ongoing economic struggles demonstrated the forward-thinking nature of markets that anticipated the eventual recovery and return to normal after the pandemic. 

Portfolio diversification is key to success

2020 brought distinct winners and losers to the front of the markets and the economy. The struggle of some businesses and the growth of others demonstrated the importance of maintaining a diverse portfolio that is more likely to include winners even during an economic downturn. 

Plan faithfulness also brought success in 2020 

Similarly, 2020 highlighted the importance of remaining faithful to your investing strategy. For example, investors who left the stock market in March lost out on the rebound in global equities later in the year. 

Lessons for 2021

2020 left investors with lessons to follow in 2021. In particular, 2020 demonstrated that uncertainties and tough conditions do not have to derail a solid marketing plan. As long as investors follow a strong investment strategy that includes a diversified portfolio, they are likely to successfully weather market fluctuations over the long term.