How did you feel about your investments a year ago? As we write the history books to tell the story of the COVID-19 recession, March 23rd is a milestone. The S&P 500 had fallen 34 percent in just 16 trading days, hitting 2,191.86 on March 23rd. It was the bottom.

At yesterday’s close, the S&P 500 sat at 3940.59, a full 79 percent higher than a year ago. Break things down and look at asset classes like Small and Mid Caps, they’re up 127 percent and 117 percent, respectively. When you hear the story told like that, you probably feel pretty good about your investments. Of course you’d want to be in the market on March 23, 2020. But did you feel that way a year ago?

Perhaps fittingly, on March 24th last year, we published a piece that looked at previous market crashes. The story in each was very similar to today: Over time, markets recovered and pushed higher. And when it came to the situation in March of 2020, we had been reminding that the economy was strong before the pandemic, and due to that, we expected the economy to return to strength once we began to move past the pandemic — potentially at a pace similar to how quickly we’d fallen. Amid this uncertainty, we laid out four milestone markers that we believed would return us to the growth we’re now experiencing. Those who heeded the advice were rewarded.

THE COVID-19 RECOVERY

As stocks have climbed from their lows over the last year, much of the market chatter has centered around which companies, sectors and asset classes are the best places to invest your dollars. Many focused on the technology and growth sectors that initially led the recovery. But we have expressed our belief that we were moving from a narrow economy — one that favored technology and growth stocks — to a broadening economy.

Given our belief, we have and will continue to favor cyclical value and Small Cap companies in our diversified portfolios. This has been a huge value add for our clients over the past year. But it’s not the only thing that determined success or failure during this time period. Perhaps more important was just being able to stay in the market.

We all know that we’re not supposed to sell stocks amid a panic. That sounds great until everyone is actually panicking. It can be easy at that point to convince yourself that this time will be different and that you should sell. But that’s exactly the time, at least throughout history, when staying invested adds value.

Anyone can own stocks when times are good. But this time last year, in a series of podcasts, I reiterated my belief that you achieve financial security when times are bad. Those who are able to stick to their plan tend to be rewarded. This is a topic I’ve written about frequently. I often point to the VIX, which is a measure of expected market volatility. Last February, just before stocks began to fall, I wrote an article that showed the cost of selling when the VIX spikes.

Right after that article, the VIX spiked to record levels — and as the chart below shows, much like past episodes, the market rallied in its aftermath.


Let’s pull this into the context of a portfolio. An investor with a traditional allocation to 60 percent stocks and 40 percent bonds would have lost 18.5 percent between the start of the year and the March 23rd bottom. If that investor sold, they would have locked in that loss and missed the 43 percent rally that followed. That’s the equivalent of six years of returns at 6 percent.

THE VALUE OF AN ADVISOR

This is perhaps the place where a financial advisor can add the most value. They can work with you to build a plan that prepares you for the good times while also anticipating and preparing for market downturns. And they’ll be there to show you how the plan is working when the waters get rough.

Ultimately, your plan should be tailored to your tolerance for risk. And your plan can change over time. But the best time to change it is when times are good — perhaps now. Changing it when you’re in the middle of a storm is when you lose value. By getting ready for the next storm now, you’ll be in a better position to take advantage of those returns that tend to follow fear.

Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.

There are a number of risks with investing in the market; if you want to learn more about them and other investment-related terminology and disclosures, click here.

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