One year ago today, the S&P 500 hit an intra-day low of 2,191, marking the end of a 22-day freefall in which it had fallen by 30% – the fastest decline in history.
It was by no means a unique case, as market indices across the globe saw comparable drops and many stocks lost more than 50% of their value during the same period, as the scale of the crisis unfolding became clear.
12 months later and the S&P 500 is hitting new all-time highs, whilst the majority of stock prices have rebounded. Whilst the world is by no means out of the woods yet the worst of the pandemic does seem to be behind us.
There is a lot to be learned from the events of the past 12 months. Here are our main takeaways of lessons to be learned from the pandemic.
Keep your emotions in check
One of the biggest lessons learned by many investors in 2020 was the importance of avoiding emotional reactions to unfolding events. The immediate reaction of many investors to the March 2020 crash was to sell. Of course time has shown that those able to keep their emotions in check were those that saw significant gains in the long-term.
Warren Buffet once wrote “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”. If an investment is made with long-term goals in mind, any short-term developments should not cause you to deviate from your path.
Your emergency fund may need to be bigger
Any solid investment advice will always stress the importance of having an emergency fund. Whilst the vast majority of investors do have something set aside for an emergency, the pandemic has proved to many that they underestimated just how much they might need. Many had to sell investments to cover living expenses.
To be fair, the commonly accepted advice has always been to keep between three and six months worth of living expenses set aside. Perhaps this consensus needs to be revisited though.
Pandemics may be a once-in-a-generation occurrence, but there are a number of other issues that could see you needing to live off your savings for an extended period. As the past year has shown, your emergency fund can never be big enough.
The tech revolution isn’t slowing down
One sector that soared in 2020 was tech. Over the course of the year, the tech-heavy Nasdaq 100 outpaced the S&P 500 by about 30 percentage points (+48.9%, vs +18.4%).
The global uptake of remote working and online shopping were two major drivers of growth in the sector, whilst the necessity of many products ensured that demand didn’t drop. The pandemic has only accelerated existing trends though, the number of people shopping, seeking entertainment and working from home was already increasing year on year before Covid struck.
Technology is only becoming ever-more embedded in our daily lives, and the pandemic has made it clear that this sector will be at the forefront of any further global challenges to be faced.
