The Market Has No Memory – Lessons from 2019
As we enter the new year, financial analysts will be reviewing past performance data and making predictions for 2020. I am not a strong believer in predictions, but I do think that the new year is the perfect time to look back at the lessons we’ve learned over the past year and how we can apply those lessons in 2020.
At the beginning of 2019 the news was filled with doom and gloom headlines including CNBC’s “US stocks post worst year in a decade as the S&P 500 falls more than 6% in 2018” and the Wall Street Journal’s “U.S. Indexes Close with Worst Yearly Losses Since 2008.” These headlines created to a lot of anxiety around the market that resulted in people trying to time the market. Some felt that after 11 years the bull market had to be coming to an end and they decided to get out and wait for prices to go down.
But contrary to the dreary predictions at its start, 2019 saw global equity markets finish the year up more than 25% and fixed income gained over 8%. And those investors that make the risky decision to get out and try to time the market? They missed out on big growth which has as much of an impact on a portfolio as losing that same amount and no one can say how long it will take to win back that loss. Now they are also faced with the dilemma of when to get back in.
So, what are the lessons learned from 2019? The market has no memory. Don’t try to time the market in 2020. Spend your energy on determining how much of your portfolio you’re comfortable investing in equities over the long-term so you can capture the ups and ride out the downs.
No one will ever know the best time to get into the market because we can’t predict the future and that’s the way it should be. It’s unrealistic to think the market would ever offer an obvious time to “get in.” If it did, there would be no risk and no reward.
Now what should you do in 2020? Focus on long-term investing with a broadly diversified portfolio. Accept that the market will inevitably have its ups and downs. Stop trying to time the markets and save yourself the anxiety. Make sure to use a trusted advisor to help you prepare and stay invested during times of uncertainty.