Investment Lessons Learned

Park Place Financial |

Essential Investment Lessons Learned from the COVID-19 Pandemic

From a historic health crisis felt on a global scale to economic uncertainty, 2020 was a tumultuous year for millions of people. It changed the way people live and work, shifting the global landscape potentially forever. However, it also brought many valuable financial lessons to light that can be applied going forward. We're taking a look back on the key investing lessons from 2020 and how those takeaways can help pave the way toward a brighter financial future.

Create a Diversified Portfolio

One of the biggest investing lessons reaffirmed during the pandemic was the importance of a diversified portfolio. Diversification is a risk-management strategy that mixes assets within a portfolio to help mitigate market volatility. The idea is that as some portfolio investments underperform, others could thrive or stay the same, minimizing overall damage due to inevitable ups and downs of the market.

No portfolio is immune to market fluctuations or steep economic changes, especially those marked by significant global events. For example, travel bans and forced shutdowns affected different industries in different ways. While airlines and other travel-related industries were hit hard, remote working tools performed rather well. An all-in investment toward one or the other would have had very different outcomes. Diversification helps create enough resilience to minimize the chance that a portfolio could be significantly hurt by a single occurrence.

Stay Invested

Timing stock market investments can be tricky, even for the most seasoned investors. This is why it is extremely important to evaluate your risk tolerance with the help of a financial professional. Markets move fast and no one wants to see their investments take a dive. Many factors can alter the outcome of an economic downturn or a recession, and there's no real way to predict the result. As hard as it can be to watch the market, especially as we neared the spring of 2020, staying the course again proved to be a sound strategy. 

Economic data from 2020 shows that the 10 best days for the market all happened within one week of the 10 worst days for the market. Those who remained invested in the S&P 500 from January 2020 and through March 2021 would have seen a +19% gain. What's more, the 10 best days for the S&P 500 in 2020 occurred between March and early April. While such volatility can be intimidating, investors who liquidated their assets would have missed out on some of the best days of the year, leaving their portfolios open to the consequences. 

Plan Ahead

With the COVID-19 crash of 2020, the importance of putting a financial plan into place before it's needed cannot be overstated. Studies reveal that only 18% of Americans could live off their savings for at least six months prior to the pandemic, and many adults didn't have an emergency fund at all. Of the one in four Americans who did have a rainy day fund, many didn't have enough to cover three months living expenses.

In a world where life can change in the blink of an eye, financial planning can provide more than just peace of mind. Saving for the worst of times helps prepare you for the rough patches that pass in the short term, while long-term financial planning helps ensure you'll have a nest egg to turn to in the future. From healthcare retirement planning to estate planning, preparing for the expected and unexpected are critical parts of an overall financial strategy. 

Stay focused on your financial needs, timeline, and end goals. Ask yourself: At what age would you like to retire? What does life look like once you get there? Do you have a will in place for your loved ones? By connecting your needs and values to your financial framework, you and your advisor can come up with an investment strategy that can weather the storm.

Consult a Trusted Financial Planner Today

Be proactive about your financial future using the investing lessons learned in 2020. At Park Place Financial, we can help you craft a customized portfolio that addresses your needs and concerns. Reach out to us to learn more or to schedule a consultation at our office in Bellaire, Texas.