The year 2020 began with bright promise as unemployment reached historic lows, and the financial markets hit new all-time highs.
The pandemic arrived and changed everything. The abrupt lockdown and subsequent shutdown of the global economy seemingly stopped the earth from turning, and it appeared that the good times would become a distant memory. Markets crashed at breakneck speeds as financial losses unfolded in a matter of weeks.
The financial markets eventually found a bottom and turned up. No one rang a bell, and the world was still on lockdown, but the doomsday predictions began to fade. The markets started climbing to new all-time highs only months later.
Expect the Unexpected
This familiar phrase took on renewed clarity in 2020 and the beginning of 2021. It underscores the importance of having a comprehensive financial plan to help prepare for the highs, lows and middles.
The economy and investments move in cycles over time, and recessions and market corrections could happen about every decade.
Diversification Is Critical
Many investors know that putting all of their investment eggs in one basket is dangerous.
Spreading investments across different sectors, asset classes and even geographies can help to mitigate risk. For that reason, when it comes to investing for 2021, be sure to diversify your portfolio.
Knowing what your target asset allocation is and periodically using times of market disruption to rebalance toward those targets can help keep your plan on track and smooth out the inevitable bumps in the road.
Emotions Amid Volatility
Let’s face it, 2020 was an anxiety-provoking year. The rapid spread of a deadly virus, coupled with global lockdowns, caused an historic market plunge and spike in unemployment and challenged even the most stoic of investors.
However, if investors acted upon their fears and sold investments at the wrong time, they may have completely sabotaged their financial goals. Acting impulsively on news headlines or social media posts can quickly derail long-term objectives.