The Covid-19 bear market ended just over a year ago, on
March 23, 2020. Needless to say, the twelve months that followed delivered no
shortage of economic and political twists and turns. But for equity investors
who kept a steady hand and a long-term mindset, it also delivered a +75% return
on the S&P 500 (from March 23, 2020 to March 23, 2021).1
Reflecting on the last twelve months, I find it useful to
think about lessons and takeaways we can learn from, so we can apply them to
our investment approach going forward. Here are my top three.
Lesson #1: Work with
a Trusted Advisor to Help Keep You on Track
The world was awash in uncertainty this time last year, and
no one knew what the future would hold. Markets were frazzled, folks were
scared, and no one really understood any details about the nature of the
pandemic. But it was also as important as ever, in my view, to stay invested
and keep a steady hand.
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Instead of Timing the Market, Focus on Your Long-Term Financial Goals!
Amongst the many lessons that can be learned from a bear
market, the most important lesson is to not time it. When the pandemic started
last year around this time, investors were questioning how to plan out their
financial future. Still to this day, there are still reasons to be uncertain
and cautious in your decision-making process.
There have always been factors that heavily shifted the
market in the past, but over time there has also been a positive return . So,
instead of focusing on short-term choices, I recommend sticking to the
fundamentals and maintaining a diversified portfolio.
To help you do this, I am offering all readers our
just-released Stock Market Outlook report. This report contains some of our key
forecasts to consider such as:
- S&P
500 earnings growth
- Outlook
for underlying U.S. economy?
- U.S.
returns expectations for 2021
- What
produces 2021 optimism?
- Is
it time to buy U.S. stocks?
- Update
on U.S. fiscal stimulus
- And
much more…
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!
IT’S FREE. Download the Just-Released April 2021 Stock Market Outlook2
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It helps to have a trusted advisor who communicates
frequently and clearly. At Zacks, we publish over 300 individual investment thought-leadership communications,
so we can stay in touch with our readers and provide constant insights into our
decision-making process.
Even
with frequent communication, some investors still want to make adjustments
during uncertain times, for peace of mind. We get that. That’s why we offer a flexible range of investment solutions to
give you more control, instead of simply offering you a sleeve of portfolios
based only on your risk tolerance. Not only do we give investors options, but we
also offer the ability to customize portfolios to include or exclude
specific industries.
Finally,
it helps investors to know that decisions are being made using a trusted source
of investment research, in our case Zacks Investment Research. Having a robust
decision-making process guided by research is critical during a time when it’s
easy to give into subjectivity.
Lesson #2: Diversification
Will Help You Capture Short-Term Trends
Once the rally off the bear market bottom gained steam, many
investors were scrambling to invest in growth trends – eCommerce, remote work,
digital everything – hoping to
capture some of the uptrends. Then later in the fall, the hot trade was
favoring value over growth. After that, it was small over large.
My point here is that leadership changes hands often and
quickly in the equity markets, and investors who try to rotate over and over
will often latch onto a trend too late – after many of the gains have already
been priced-in.
As many long-time readers know, I do not advocate short-term
market timing, and I definitely do not advocate chasing trends and shifting
your asset allocation based on market speculation. That’s where diversification
comes in – by owning a diversified set of stocks across sector, region, style,
and size, you do not need to worry about shifting your portfolio around to
capture the latest outperformer. A diversified portfolio will likely already
have exposure to it.
Lesson #3: Keep
Steely Nerves During a Crisis
I already mentioned keeping steely nerves during a crisis, but
it’s so important that it’s worth referencing again. Stocks fell -34% from
February 12 to March 23 – a record sharp drop that accompanied a very scary
time. Many investors fled the market.
We know today that selling stocks on the way down was a
wrong decision. The market’s rally off the bottom continues today and has been
among the strongest in history. But we’ve seen this time and again throughout
history – since World War II, there have been six bear markets over
-30%, and every single time the S&P 500 index rallied
strongly off the bottom, with an average return of +40%.
The potentially good news for investors: the second year of
the bull market is also strong historically, up an average of +16.9%. Keep your
steady hand.
Bottom Line for
Investors
The past year has been extraordinary, but not necessarily in
a good way. There are many lessons within politics, economics, and public
health that we are still learning and will continue learning for years. When it
comes to investing, there are many lessons we can take away from the past year,
but I think the three above mattered most and
can be applied over the long term.
Working with a trusted advisor, keeping a diversified portfolio, and staying calm during a market crisis are all steps you can take to better plan your financial future. One way to stay calm during times like these is to focus on key data points and economic indicators that could positively impact your investments long-term. To help guide you, I am offering all readers our Just-Released April 2021 Stock Market Outlook Report.
This report looks at several factors that are producing optimism right now and contains some of our key forecasts to consider such as:
- S&P
500 earnings growth
- Outlook
for underlying U.S. economy?
- U.S.
returns expectations for 2021
- What
produces 2021 optimism?
- Is
it time to buy U.S. stocks?
- Update
on U.S. fiscal stimulus
- And
much more…
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!
Disclosure
1 Kiplinger. March 23, 2021. https://www.kiplinger.com/investing/stocks/602493/stock-market-today-032321-stocks-fall-on-anniversary-of-bear-market-bottom
2 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion.
3 Zacks Investment Management reserves the right to amend the terms or rescind the free Stock Market Outlook offer at any time and for any reason at its discretion.
DISCLOSURE
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This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
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The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.
The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.
The Russell 1000 Value Index is a well-known, unmanaged index of the prices of 1000 large-company value common stocks selected by Russell. The Russell 1000 Value Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.