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A Rollercoaster Year Ends on a High Note Thumbnail

A Rollercoaster Year Ends on a High Note

In terms of finance, 2020 was a year none of us will forget. The initial outbreak of Covid-19 and fears about its rapid spread sent stocks tumbling in March.

The stock markets dropped nearly 34% within a month’s time. The downdraft was fueled by uncertainty surrounding the lockdowns and interruption of economic activity at home and abroad.

The swiftness of the decline was unexpected and unprecedented. But the strong recovery, which was born out of extreme pessimism, caught many analysts by surprise.

Let us reiterate one of the themes that regularly surfaces during discussion about investments during a volatile market. 

One must be right twice to successfully time the market. You must correctly call the peak and the trough.  No one can do that. 

As the markets rallied from the March low, many analysts continued to warn of further declines, which never materialized. These analysts are smart people. They know their craft. But to frame it in the simplest terms, even very smart people can’t predict the future with certainty. No one can.

As baseball manager Yogi Berra once said, “It’s tough to make predictions, especially about the future.” 

Making the case for stocks

As we have emphasized in the past, stocks have a long-term upward bias, and that upward bias is incorporated into your financial plan.  

Since 1980, the average annual intra-year pullback in the markets has been 14%; yet, the S&P 500 has averaged a 13% yearly increase.

Last year’s pullback was 34%, while last year’s total return was 18%.

Here are some additional data points. From 1980 to 2020, there have been:

  • 7 down years, with the average decline during a down year of -13%
  • 34 up years, with the average increase during an up year of +18%

Additionally,

  • 21 out of 41 years, we had pullbacks of 10% or more.  An average of one every 2 years.
  • 6 of the 41 years saw pullbacks of 20% or more.  An average of one every 7 years.

This reminds us that a diversified stock portfolio has a place in all financial plans.

We hope you found this to be educational and helpful. 

Let us emphasize it is our job to assist you. If you have questions or would like to discuss any matters, please contact us anytime.

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