2020 has been one of the most eventful years in modern history. There may be some financial lessons to learn from it.
This year has thrown up a number of different things for Aussies to deal with. The year started off with plenty of eventful matters – there were the Australian bushfires still going on, the US and Iran almost started a war, and the world watched as Wuhan battled a coronavirus.
And then everything went crazy in March 2020. Which was only nine months ago. We’ve also seen an unprecedented slowdown of global travel, an unforgettable US election and an extremely quick period of vaccine development.
Lesson 1: Market panic can still happen
We have entered into an age where information can be accessed instantly from almost anywhere in the world. We can read about all the other stock market crashes of the past. We can try to think long term, as all the investing greats tell us. But that didn’t seem to matter in March when the markets went through a meltdown as COVID-19 cases skyrocketed globally.
The selloff was the quickest in history. In the moment it can seem like the world as we know it is ending. Commentators suggested the selloff was due to computers doing the selling, or overleveraged investors trying to limit losses. Either way, March 2020 showed that volatility and heavy crashes can still occur.
Lesson 2: Be optimistic about the future
The recovery from the crash earlier this year has been almost as astounding. The S&P/ASX 200 (ASX: XJO) is essentially back to where it was at the start of 2020. The S&P 500 is up more than 10%.
There’s no doubt that the share market should be higher than it was in March and April. Just look at all the reports of businesses that are still reporting big growth numbers from all sectors – JB Hi-Fi Limited (ASX: JBH), Nick Scali Limited (ASX: NCK), Adairs Ltd (ASX: ADH), Wesfarmers Ltd (ASX: WES), Afterpay Ltd (ASX: APT), Kogan.com Ltd (ASX: KGN), Temple & Webster Group Ltd (ASX: TPW), Fortescue Metals Group Limited (ASX: FMG), Sonic Healthcare Ltd (ASX: SHL), Eagers Automotive Ltd (ASX: APE) and Bapcor Ltd (ASX: BAP).
People were right to be a bit nervous about what was happening in March, but that was the best time to be buying shares rather than selling. A crisis that suddenly pops up will eventually settle down, even if it takes months (or a few years) to work through. But eventually it does get better. The world recovered from the GFC and it will recover from COVID-19.
Lesson 3: It’s always worth having a healthy amount of cash
There were some businesses that decided they had to raise cash during the difficult part of COVID-19. These businesses did a capital raising at a bad time, when the share price was low, which diluted existing shareholders. If they had a bit more cash to start with then they wouldn’t have needed to do that so soon.
This advice can also apply to personal finance, if you can indeed set aside some cash within your monthly budget. You never know when an emergency is going to hit, so having cash on the side can be useful to ensure you can get through whatever happens for a few months. However, in terms of investing cash, there is an argument to be (almost) fully invested the whole time because it’s hard to know when the share market is going to rise quickly or fall quickly.
In terms of which businesses look good for next year, I’ve written about three ASX shares for 2021, two tech shares for 2021 and two ASX dividend shares for 2021.
