What 2020 Taught Us About Investing
Read Time / 3 Minutes
Theme / Year End Reflection
As we close out 2020, Scripture teaches us to “Remember the days of old” (Deuteronomy 32:7), reminding us that by looking at the past, we can gain wisdom for the future. Here are three investing lessons to “remember” as we move past the days of 2020 into those of 2021.
It’s Easy to Panic, But We Shouldn’t
By March, the S&P 500 had dropped 32% from the beginning of the year. Since then, the S&P 500 has gained 69%, resulting in an overall gain of 14.6% for the calendar year (as of 12/27/2020). It was a roller coaster ride for investors, but those that did not panic saw the fruit of their patience. If we are tempted to try to time the market – getting out before the market drops and getting back in before the market rises – then we will be sorely disappointed. It is notoriously difficult to time the market, trying to predict the future.
A better strategy is to diversify our investments to match our goals and associated risk tolerances, and let the ride begin. It is important to allocate our investments appropriately across asset classes (equities, fixed income, and savings) to enjoy the ride. “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth” (Ecclesiastes 11:2).
It’s Easy to Focus on the Present, But We Shouldn’t
When we invest, we invest for the future: college for our kids, retirement for us, increased healthcare as we age, and leaving a legacy to our family and charity. (Investing means putting money into stocks and bonds and not leaving it in the bank.) We invest towards long-term goals, not to buy groceries next week. As we know from Aesop’s fable of the tortoise and hare, the tortoise wins every time – slow and steady wins the race. Having a long-term perspective on our investments helps us weather the short-term fluctuations, because we know that historically the market eventually goes up.
Using a three-bucket strategy can help us practically and emotionally handle volatile years like 2020. In the Now bucket we have cash in the bank to live on for six months or more. In the Soon bucket we invest to meet our goals in the next few years. In the Far bucket, we invest to meet our goals that are many years into the future. The farther we look towards the future, the more aggressively we should invest since our investments have more time to weather short-term volatility.
It’s Easy to Lose Perspective, But We Shouldn’t
The Bible makes it clear that God is the owner of everything, and we are His stewards (Psalm 24:1). Since our responsibility is to manage His resources for His glory, there are two implications for us from 2020. As managers we should be investing God’s resources to reflect His values. If we invest in Biblically Responsible Investments – investing in companies whose products and processes bring honor to the Lord, rather than dishonor – then the ups and downs of the market in 2020 become less important because God is being honored through it all.
Finally, God is a gracious God, and we should reflect this by being generous. Many people had needs in 2020, from lost income to lost health, with opportunities for others to share generously with those in need. Philippians 2:4 reads, "Let each of you look not only to his own interests, but also to the interests of others." As we look to 2021 and beyond, let us remember to bless others as we have been blessed.
Doug Hanson, MBA
Wealth Advisor
(208) 697-3699
doug@christianwm.com