The Year of Uncertainty – 2020 Recap
2020 was one of the most unforgettable years that many will talk about for their entire lifetime. Aside from the terrible COVID virus, surprisingly, it was a solid year for stocks and that is what I will focus on in the 2020 recap.
The S&P 500 index returned 18.4% including dividends despite all of the volatility. At one point, on March 23rd, 2020 – the S&P 500 was down 30.75%! Being down that much, the impact was shocking and personally, I was at peak fear about the Coronavirus, money, and what was going to happen in the near the future.
Since we are recapping 2020, March 23rd, 2020 was the day that I should have slammed every single penny into the market. I did make a couple small moves prior, selling high and buying lower, up until March 23 with the Fidelity fund FXAIX, but I was not fully in during this day, which leads me to lesson number 1.
Lesson 1: Peak Fear and Losses Can Present Opportunity
Peak fear means, peak fear. Not CNBC, red all over your TV screen with some paid guest preaching the market is falling, meanwhile, in the background he’s already positioned for his CNBC time slot. I am talking fear. The type where you have not gone outside for a week and there is a load of canned goods stashed in your pantry, fear. That one.
Mixed in with fear, we cannot forget about the impact of the federal reserve. The fed mixes in the 2020 picture to solidify an “interesting” time period, but in this particular case for 2020- the guys at the top knew business, liquidity, and how to take action.
The federal reserve supported one of the greatest come backs in the stock market. It took a month to recoup about 20% of the 30% losses and by late August, the S&P was back up by over 10%. We may not see something like that again. Especially not one where you have another 20 years of work left in your lifetime to recoup. So yeah, next time when you don’t know what you’re going to do tomorrow, may want to fire up that 401k, find some spare change, and throw it into the market.
Lesson 2: Manage Your Own 401K
Lesson number two is one in development. Managing your own 401K is picking your investments, making sure you are contributing to your employer 401K or retirement program, and tracking the progress against the market. I pick the S&P 500 as my benchmark. My strategy involves an excel sheet and a daily log of the market against my balance. Have the beginning balance, add in your contributions throughout the year, and daily or weekly, log the total amount of money in your account against the end of the day S&P close.
Last year, nothing to write home about, but my return was 1.47% better than the S&P. Most people could have smashed that, but this is not a Robinhood trading account. We are talking my 401K retirement account. My largest investment is the Fidelity Fund FXAIX, which mirrors the S&P 500. You buy it on your own, you do not need to pay any financial advisor, and the fees associated are less than it would be from paying a financial advisor. At the end of the year, if you are within a couple of percent of the S&P as an example, you might even be better than where you would have been through a financial advisor due to the fees. My other holdings do include a solid portion in just stocks and one other mutual fund POGRX. Blackberry ($BB) is one of my largest holdings in the stock portion and has been absolute dead money until late 2020. I’ll get into that another time.
Side Story On Financial Advisors…
Financial advisors are a great option for those who do not want to spend time or are not interested in managing their money. If you don’t care about managing money, my guess is, you would not be reading this article. I am sure you know a few bad stories about financial advisors. My side story isn’t a bad one, it just is a portion of the reason that I believe some of the financial advisor trade is not your best option.
Here’s the thing, in my past I knew someone directly working for a successful advisor. He had roughly $200M+ under management and was pulling in total revenue somewhere in the range of $1.2M – all from fees. In reality, his revenue was not much considering the assets under management. However, when you look at the day-to-day, the main hustle was to get more clients and more assets under management. Client sign on was everything and a massive focus. Typically, financial advisors will be limited to certain packages based on your age range and you become another client when they put you in the system. Great, kthx.
The problem is, you can do all of this on your own. Fidelity is a perfect example. You can buy mutual funds, stocks, bonds, all the stuff the “big guy” financial advisors can do. On top of that, you can find services like Matt McCall, sign up for his services and try to be smarter than the Cramer’s of the world on CNBC, all on your own.
Another point I found with my wife’s 401k: if you cannot buy and sell your own 401k and only receive monthly statements– match whatever the company is giving you and invest the remainder in a different account. Monthly paper statements in the mail are an absolute joke. Those times are over with. If this is you, find another brokerage immediately. If you want to make a trade and it takes two days, find another brokerage immediately.
Lesson 3: Stick With Your Investments (2019 Carry-over)
2020 brought a new year, new stocks, and what I thought was a new focus on sticking with my choices rather than selling off too quick. As much as I learned in 2019, I still did not fully stick with this lesson. I was in Enphase ($ENPH) at $44 and sold at $55. The stock currently sits at $199. Howmet Aerospace ($HWM) I was in at $10 & $16, sold early. The stock currently sits at $27. Another company called Adient ($ADNT), I was in at $6 and sold quick. Got back in at $15 with a much larger position and sold early, now it is $36. Stick with your investments.
Last year, I also created my first diversified stock portfolio by picking nearly 8-10 stocks. It proved to be a solid choice, but I did not stick with all of my investments long enough. That is something I will plan to work on again in 2021 and I also recommend to you. Put the time in to investigate a company’s financials, where they sit in terms of future technology, and revenue growth. If you have done all of your homework, stick with your investments despite the volatility.