Pointillism Part 2: We Now See the Bigger Picture in Last Year's Markets
Read the March 2020 prequel to this blog, “Pointillism: Seeing the Bigger Picture in Today's Markets.“
2020 Market Correction in Rear View
On March 11th, 2020, COVID-19 was officially declared a global pandemic by the World Health Organization and stock markets continued to plummet over 30%. At that time, we reminded our clients and readers to focus on the bigger perspective.
The artistic style of pointillism, as seen in the painting of “A Sunday on La Grande Jatte”, is the creation of a picture through the careful design of millions and millions of tiny dots that can only be seen when looking closely. As you step away and get a bigger perspective, you can see a clearer picture and you see the masterpiece instead of just the dots.
And so it is with the daily movements of markets and long-term trends.
Last March, it was tempting to view markets like this. If you chose to focus only on February through March of 2020 – just a few weeks – things seemed bleak.
But with some self-control, we were able to zoom out and view markets with a bit lengthier perspective – 20 years. And the correction didn’t seem so bad.
Now, one year later, we can look at it with an additional year of perspective. Compared with 21 years of data, the panic of last March fades.
Keeping the Broader Perspective
If you have a long-term investment horizon, it generally pays to keep the long-term view so that the bumps just seem to fade away. Worrying about the daily, monthly, or quarterly swings and trying to time the market is hard on your emotions and impossible to manage.
Imagine you tried to time the market over the last 3 years. The chart below displays the one-year returns of different market start dates. Short-term returns throughout 2019, 2020, and 2021 show A LOT of variability (from -7.3% to 53.7%). If you had known about COVID-19 and the market correction in advance, you’d ideally have invested on 9/1/2019 and again on 4/1/2020. But alas, no one can know the future or market behavior. And, if you invested on those dates and wanted to be rewarded with the returns in the chart below, you would have to be okay with riding out the March 2020 volatility – a choice many investors were queasy over, or be able to perfectly predict one of the fastest market recoveries in history.
3 Lessons to Learn from 2020
Invest regularly because you do not know what will happen and when it will happen.
Make sure you match your portfolio risk level with your personal investment needs and goals. If you can’t ride the waves (for many reasons), then you shouldn’t be riding the waves with risk.
If you have a long-term horizon, keep your eyes there and not on the ups and downs. Stay invested.
What Will You Do Next Time?
Now that you can see 2020 clearly, you may feel that you made a mistake. But in the words of Carl Richards, “we’ve all made mistakes but now it’s time to give yourself permission to review those mistakes, identify your personal behavior gaps and make a plan to avoid them in the future. The goal isn’t to make the perfect decision about money every time but to do the best we can and move forward. Most of the time, that’s enough.”
If you need help making a plan to avoid those same mistakes, give us a call today.
