Each year I like to reflect on what I learned. Most years that can be summed up in a few bullet points. This year I could write a multi-page essay. Nevertheless, I will force myself to stick to a few bullet points. Here is what I learned:
- Treasury bonds and cash are the most reliable assets in a crisis. When everything else fell apart in March, they held steady (Treasuries went up). Yet they don’t offer much return today. Hold enough to cover your spending needs through a crisis, but not too much.
- Don’t underestimate policy responses when things look bleak. Perhaps the only thing that can bring our two political parties together is a financial crisis. They passed giant stimulus bills when they needed to in 2008. They passed giant stimulus bills again this year. The Fed also played a big role in stabilizing markets. Things could have been much worse without these interventions, but instead markets rallied.
- Humans are amazingly adaptable. That also helped the stock market recovery. In early March, I thought that my job had to be done in person. By mid-March, I was fortunate enough to be able to work from home. All the in-person processes had been changed overnight. This same thing happened again and again across our economy. Businesses adapted to survive.
- The media produces serious anxiety. I’m convinced that is their goal. They want you to tune in to the crisis of the moment. That can cause mistakes when it comes to your finances. When we got to the point where both Democrats and Republicans were worried about their investments because of what the other party was doing, I took a step back and realized that all the fear mongering wasn’t helping anyone make rational decisions. Pay attention to the stories that appear on multiple reputable sites and then move on with your day. Certainly, don’t change your investment strategy based on the news of the day.
2020 was a hard year for many people. I hope you’re doing well and that you get a chance to relax during the Holidays. We will get through the rest of this pandemic together. I’m optimistic that next year will be better.
About the Author: John O’Connor
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