March 2020 In Hindsight

As the year comes to a close, the S&P 500 finishes up 16%. A solid return all things considered. 2020 was a decade in a year - we had market euphoria, panic, then euphoria again. March was the standout month of a standout year. It was peak panic and the market showed it by crashing 30%. The drawdown was agony but as with all pain, there's a lesson to be gain.

Most millennials have only known a bull market. Never experiencing anything close to a crash. March was the perfect stress test of what we thought our risk tolerance was.

For me, March stung. No one likes to lose money. But I was largely unbothered. I had no plans to abandon ship. I didn't lose sleep. I was fine. Part of me was actually happy buying cheap. My demeanour was confirmation that I was in the right portfolio - for me.

On the other hand, if you sold, it's a sign your portfolio might be too risky for your tolerance.

Conventional risk assessments center predominantly on timeline. The later you need the money, the higher your tolerance. Thus young investors should take more risks. This is all well and good...on paper. But we're not robots, we all have a different sensitivity to volatility.

Yes, the more risk we take, the higher the expected returns. But we need to survive to benefit. Holding safe assets like cash and bonds won't provide much in terms of returns, but if they enable you to stay invested then they're well worth it. The perfect portfolio is one you can stick with.

Now that your investments (and you) have been battle-tested, take stock (pun intended) and adjust accordingly. Endurance is key.

Comments

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Herman Ye

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