For my final blog post of 2020, and as a sort of investing wrap up for this incredible year, I wanted to follow up on two investing-related posts from last year, namely:
- The Fabulous Investing Decade of the 2010s (What’s Next?) (from 12/31/19)
- Day 311: What’s Your Risk Tolerance? (from 6/10/19)
In the first of these two posts, written in the waning hours of the 2010s, I thought about the last decade, specifically how cushy it ended up being for investors (despite the Financial Crisis that preceded it).
That’s very interesting to me, because here we are today, a year into the new decade, having gone through an era-defining worldwide crisis that dwarfs even the Great Recession (and certainly was the biggest economic interruption since then).
My how things have changed.
Or have they?
If you are an investor and held on through all the drama, you made out okay! As I wrote in last year’s decade wrap up, the S&P ended 2019 at 3,221.29. It ends this year at 3,756.07. That’s growth of nearly 17%.
Not bad for a year when the floor dropped out from under Civilization 🙁
Of course, following the crash this past February and March, there occurred a great market bounce-back that has lasted the rest of the year. Because of this, the market at the end of this year feels a lot more like a continuation of the Great Bull Market of the 2010s than one existing in a world where people are still afraid to go to movie theaters or get on cruise ships.
Interesting times indeed!
In the second post linked to above, I did doing some deep thinking about how much risk I really wanted to take on in my investments. Was I happy with my stock-allocation, or did I want to take on more bonds? In fact, a few days later, I made the decision to increase my bond allocation slightly.
However, after getting through this year’s market drama I realized that I think I can stand the stock market bucking bronco through its kicks and turns :). I wanted to answer the questions I posed in my post from last June, now that I have some actual experience dealing with market volatility:
Here goes:
- If the market were to dip 20%, 30%, 40%, or more (!), how would I feel? Would I be able to keep my cool, watching my investments take a temporary nose dive and hanging in until they recover?
I (and every other investor) went through this back in February and March. How did I feel: uneasy, anxious. Like the sky was falling. But I also felt very excited by the opportunity to buy stocks on discount. I discovered that I really can handle the volatility, even though it was intense. I came through the experience more confident that I’m equipped to handle the next downturn.
- Is my exposure to stocks the right exposure for me? (I’m currently almost completely stocks) Should I consider more bond ownership for diversification? Will that make the ride less bumpy in the event of a dramatic bear market? Or would I regret the possible lost growth?
I would say that my stock-heavy portfolio feels right to me. I am investing primarily for the long-term growth, and I expect that I will continue making smart choices, whatever the market conditions. While capital preservation is a valid thing to care about, my investments have many years to grow. I’m willing to take some risk to maximize that.
- They say that stocks are supposed to give the highest returns in the long run. So if you have a long time horizon (like 25+ years, as I have before normal retirement age), you are supposed to be able to afford to live through the peaks and valleys in the stock market and still end up way ahead. That is all well and good, but in actual practice, what is it like to go through those peaks and valleys? Will I be glad I rode it out, or will I wish I had gotten off that bucking bronco of an equity portfolio and chosen the gentler, mellower mare of bonds?
Getting through this year as an investor was not easy, especially in the first few months. It was an emotional roller-coaster. If I had been inclined to panic or do something stupid in an emotional moment, I had many opportunities to do so. But I didn’t. I handled myself well. This makes me confident that I can handle volatility.
Secondly, I saw how exciting it is to buy stocks on discount. In a downturn, the game basically changes from seeing how high the overall balance can go to seeing how cheaply you can buy for! I actually am excited by the possibility of getting to do that in the future when bargains are ripe for the picking.
- What is the right balance of investments for me? In other words, what is my ideal Asset Allocation?
Personally, I am still fine with an allocation of 90%+ stocks. My wife’s investments, and the investments we share, are more conservative. We also hold cash in a contingency savings fund. Overall, I think it balances out.
Most importantly, I am more enthusiastic than ever about investing, and very interested in seeing what will happen in 2021 and beyond!