Investment lessons from 2020 for the years ahead

Let’s face it, 2020 was a year that tested investors. One unprecedented event led to another – market volatility, business closures, social distancing, deaths, restraints on travel, celebrations and family events and the mass shift to working from home. Many people across the world can agree that much of what occurred this past year was unexpected, but there are still lessons to learn from 2020 to prepare for future uncertainties and potential market turmoil.

From 19 February to 23 March 2020, the US stock market, as measured by the S&P 500 Index, saw a cumulative loss of 34%. The following three trading days saw gains of 18%, marking the best three-day stretch since the 1930s. Even for the most stoic investors, staying the course during such a historic market plunge can be challenging, as no one likes seeing the value of their investment portfolio drop. Hence many investors are eager to make significant changes like switching managers, shortening their time horizon and changing their investment strategy in the hope of a better return.

Below we look at the outcomes for two investors, Thabo and John, between January and December 2020. Both have a long-time horizon and are saving for retirement using the Coronation Balanced Plus Fund. Thabo opts to wait out the market turbulence that begins in February. John is shaken and frustrated by the declining value of his investment and decides to derisk at the height of the market turbulence after markets have dropped significantly.



Though Thabo’s portfolio had fallen by almost R18 000 by the end of March, he had recouped all his losses by the end of December and his portfolio as at end of February is R132 565. John on the other hand acted upon his fears, switched into cash and was therefore not well positioned for the rebound that followed. By the end of February 2021, his portfolio was more than R33 000 short of where it could have been without taking any action.

As we explored above, moving to cash in volatile markets can hurt long-term portfolio returns. It’s nearly impossible to predict how this crisis will unfold and making decisions based on emotion is almost always a recipe for disaster. Over the long term, as long as you own a fund with an investment goal, time horizon and risk budget that meets your needs, our view is that a better course of action is to stay the course and remain invested in your existing portfolio.

Tip: Get help from a financial professional

A professional financial advisor can help you plan and deal with the up and downs of the market, by creating a personalised financial plan to meet your long-term goals.

Article prepared by investment specialist:

Petronella Nkobe

Coronation Fund Managers