Viewed through almost any lens, 2020 was a historic and incredible year. And now it’s over. Let’s take a look back at what happened over the last 12 months in the market.
Here is a chart of the S&P 500 from 2020:
Notable events from the year included:
- The market crashed – From February 19th through March 23rd, a period of 24 trading days, the S&P 500 declined 35.41%, marking the fastest bear market ever.
- The market rebounded – After the market bottomed, it only took 103 trading days to recover these losses in their
entirety, reaching pre-crash levels for the first time on August 18th. Both the decline and the rebound occurred extraordinarily quickly. For perspective: it took 1,030 trading days (more than four years) for the market to recover from the financial crisis that ended on March 6, 2009.
Another way to gauge market volatility is through the S&P 500 Volatility Index. Commonly referred to as the VIX, it indicates the level of fear present in the market. It fluctuates between values of 10 (little fear) and 90 (exceptional panic). The following graph shows the VIX since its inception in 1990.
Volatility hit extreme levels this year. In 30 years, the VIX has only traded above 50 (the green line) for 91 days, which is roughly 1.16% of the time. Only two other calendar years registered VIX readings over 50 – 2008 and 2009 (which proved to be very attractive buying opportunities for long-term investors).
It’s truly been a significant and unique year in markets. As investors, what can we learn from this year to help us reach our financial objectives?
First, remember the importance of optimism. People who stay invested usually believe the future is going to be better than the past. On any given day, we can find bad news – in many cases, it finds us. But over time, especially long periods of time, the world is getting better, not worse. We can succeed as investors only if we embrace an optimistic point of view.
Second, the scariest markets always provide the best buying opportunities. The decisions you make during bad markets ultimately determine your long-term investment results. The best investors know how to use large market declines to their long-term advantage. It’s during years like this when having a trusted advisor can prove especially useful.
We wish you a happy and healthy 2021 – and hopefully lower readings on the VIX!