Investment lessons learned from the COVID-19 pandemic

The recent four-year anniversary of the World Health Organization's declaration of the novel coronavirus as a pandemic has awakened dormant fears. Lockdowns, mask mandates, and work-from-home orders simultaneously feel like a distant memory. A lot has happened since then.

My wife and I have seen how dedicated, patient, and persistent our school teachers are in educating our children while we are prohibited from being physically together. We talked about how impressed we were. The revelation sparked curiosity about other lessons to be learned from the coronavirus. I'm reluctant to delve into such a traumatic time, but it's important to process and move on.

The WHO declared the new coronavirus infection a pandemic on March 11, 2020. The next day, the S&P 500 index fell 9.5%, making it the sixth worst trading day in the index's history on a percentage basis.

How have some specific companies fared? Not great. To give you some context, here are just a few of the stocks that fell on March 12, 2020.

● Google 10% drop

● Microsoft 12% decline

●JP Morgan fell 18%

● Berkshire Hathaway 11% drop

● Apple 12% decline

●Walmart drops 8%

● Johnson & Johnson fell 7%

●Exxon and Chevron each fell 10%

It was a terrible day financially, and virtually no part of the market was safe. People had a natural human instinct to sell their holdings and safely transfer everything into cash. The next day, the market rebounded 9.3%, the 10th largest percentage gain in S&P 500 history, and a nearly complete recovery.

By March 16, three days later, the S&P 500 had fallen 12%. This is the third largest percentage decline in history. Once again, people panicked and tried to exit the market. About a week later, on March 23, the market bottomed, and the next day the S&P 500 rose about 9.4%.

It was a turbulent time. Most investors remember the doom and gloom of March 2020, with negative headlines about lockdowns, illnesses and deaths, and market declines. But what seems to be lost is just how much of an increase there has been. Looking back at the data reveals one important point. Nervous and impatient investors likely missed out on a huge rally as they tried to get in and out of the market. More often than not, they were mistaken.

This reveals another important lesson. Time in the market is usually more productive than timing the market.

Write it down and remember it. Market recovery can happen quickly and furiously, and missing out on any part of it can be very damaging to your overall bottom line. Need proof? Here are some examples of investors who stay invested and miss out on the best daily market gains.

Miss the best days in the stock market

If you look at the numbers from January 1, 1995 to November 30, 2023, you have almost 29 years of data. Consider the tumultuous times the stock market witnessed during this period: the dot-com bubble, the Great Recession, and the COVID-19 pandemic.

Full investment

As measured by the S&P 500, someone who remained fully invested would have achieved a compound annual growth rate of 8.3% over this period. With this rate of return, your money typically doubles about every eight and a half years based on your S&P 500 investment.

missed the best 5 days

If someone had tried to time the market by removing money and reinvesting it and happened to miss the best five days in 29 years, the impact would have been devastating. Probably. The rate of return he falls to 6.6%. This means that his annual returns are 20% lower than those who continued investing.

The more days you miss, the worse it gets.

Don't worry if that gives you a stomach ache. becomes terrible. The rate of return for those who missed the top 10 market days dropped to 5.4%, an annual rate of return of about 35%. Excluding the best 30 days, the rate of return drops to 1.8%, 78% less than the return he would have enjoyed if he had remained fully invested.

It's virtually impossible for anyone to predict the future, but that's the point. It is very difficult to accurately predict the peaks and troughs of the stock market. But history has given us enough insight and foresight to conclude that it's generally a wise move to stay diversified and stay invested, even when turbulent times cause instincts to flee. providing. As we saw in the stock market turmoil of March 2020, the worst days in the market are often followed by the best days in the market.

Other scary headlines since COVID-19

In the four years since the pandemic, we've had no shortage of horrifying headlines.

● Gas prices hit an all-time high

● Russia invades Ukraine

● Highest level of inflation in 40 years

●Fed raises interest rates to the highest level in 15 years

●Israel-Hamas war

● Market enters bear market territory

Alarming news tends to distract from the reality of fundamental and historical trends, but drawing on the lessons learned from coronavirus can help people resist the urge to bail. Masu. Unlike Double Dutch Jump Rope, there are many risks involved in entering and exiting the market.

Let's use another example. In the summer of 2022, year-on-year inflation rose to his 9.1%, the highest level in 40 years. No doubt that scared some investors. What has happened since then?

• Dow Jones rises more than 30%
• S&P 500 up about 40%
• Nasdaq rises more than 45%

The happiest retirees are usually long-term investors. They don't let shocking developments change their master plan. They don't invest in days, weeks, or even one year or two years. In fact, they are constantly aware and make adjustments as necessary, but their outlook and investment horizon ranges from 5 to 10 years or even decades.

COVID-19 and recent global challenges are a reminder of how important time and diversification are to happy retirees working toward their investment goals.

Continue to invest for the long term

The graph above covers the past 70+ years (1950-2023) and includes all stocks, all bonds, and a 60/40 portfolio of stocks and bonds held for 1 year, rolling 5 years, and 10 years. Shows the annual total revenue for the case. 20 years of rolling and rolling.

As the duration grows from left to right, the range becomes more compressed towards positive returns. Overall, the rate of return has contracted in a positive direction over time, providing a backdrop that allows people to sleep better at night even when investing their money during volatile downturns.

conclusion

The coronavirus disease (COVID-19) pandemic brought unprecedented changes to the world in early 2020, with numerous events illustrating the seriousness of the situation. There were plenty of reasons to panic, from the postponement of the Olympics to the closure of the NBA and Disneyland, international travel bans, lockdowns, and the global stock market crash.

Without a doubt, COVID-19 marked the beginning of a difficult period of uncertainty. But it also provided an opportunity for governments, businesses and individuals to practice disciplined resilience. Life can be scary, and at times like these, it's perhaps more important than ever to rely on tried-and-true basics to weather the storm. Applying these lessons to investing shows that when happy retirees trust historical data and give their investments time to grow, they typically increase the likelihood of positive outcomes.

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