What Did We Learn During the Pandemic?

The end of the Coronavirus pandemic in the United States appears to be in sight. A highly successful COVID-19 vaccination campaign has sent daily average new case numbers plunging below 12,000 nationally.  Most states are reporting about 100-200 new cases per day, rather than thousands of new cases just a few months ago. While the pandemic remains a serious global concern, life is starting to return to normal in America, and for that we should be grateful.

The 2020 pandemic was a major historic event and affected virtually every individual and family, some tragically.  Beyond those tragedies, it was also an extraordinary learning experience, and the lessons learned over the past 15 months can hopefully help us become more resilient in several areas of life. Here are a few thoughts that the pandemic has clarified for me:

  • A newfound respect for advanced medical technology. Working along parallel paths, vaccine researchers around the world not only developed multiple highly effective COVID-19 vaccines, but did so in record time. Until 2020, no vaccine had been engineered in less than four years; most take a decade or more. Ours is a miraculous time to be alive.
  • A newfound respect for the power of government. When faced with a profound global health and economic crisis, the US government reacted with a coordinated force not seen since the end of World War II. Working in tandem, the US Treasury and the Federal Reserve supported a $20 trillion economy for several months that otherwise had ground to a halt. Interest rates plunged, loan payments were suspended, and most American families received thousands of dollars in Coronavirus relief payments. Personal incomes and savings rose dramatically, as did global stock and bond markets. The pandemic recession turned out to be very short-lived, and GDP resumed its trend-line growth by the end of the year. The ability to arrest recessions and stock market declines quickly is also a lesson that policymakers will not soon forget.
  • As effective as the government response was, it did not come soon enough for everyone, which leads to the next lesson – the importance of an emergency cash reserve. Nothing drove this point home stronger for me than images of miles-long stretches of cars waiting at food distribution sites throughout America. Sadly, too many Americans still live paycheck to paycheck and simply did not have the savings to weather a multi-week interruption to their income. Those with 3-6 months of savings built up were in a much better position and largely able to survive until government relief bills were passed and cash payments distributed.
  • The economy and the stock market are two different things. I wrote about this before, but watching the stock market boom in 2Q2020 at the same time that GDP was falling by one third was a strong reminder of this fact.
  • The importance of controlling your emotions when it comes to investing. Imagine if one had ignored the market turmoil early in the year and done absolutely nothing with their investments. For those able to resist the urge to “do something,” most pandemic correction losses would have been recouped by the middle of August. Those investors with the fortitude to rebalance their portfolios near the lows in March, by selling bonds and buying stocks, did even better.
  • Lastly, markets remain as unpredictable as ever. Who could have forecast a 35% correction (from all-time highs) in February and March, a complete recovery by August, and a total return of +18.4% for US large stocks, +20.0% for US small stocks, and +18.3% for emerging market stocks by the end of the year? Market timing remains a fool’s errand, and 2020 demonstrated that remarkably.

Sources:

https://www.calculatedriskblog.com/2021/06/june-17th-covid-19-new-cases.html

http://www.capitalspectator.com/major-asset-classes-december-2020-performance-review/

https://personal.vanguard.com/us/funds/tools/benchmarkreturns

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