2020 was a remarkable year. Most remarkably, after all was said and done in 2020, our portfolios had an above average year!
Any of the following events would have been momentous, but the combination of these and other events was quite shocking, especially in what turned out to be a strongly positive year for financial markets:
- A global pandemic shutting down life as we know it
- The yield curve inverting, a notoriously bearish phenomenon
- A true market crash occurring in March 2020, when major indices were each down over 10% in one day
- Crude oil briefly selling for negative prices in the US due to a shock to demand and storage problems
- A Presidential impeachment and significantly contested November election
The bottom line: Our portfolios didn’t require any big changes to navigate 2020 successfully. Each client works with his or her Advisor to select a cash and bond allocation, and from there, our portfolio process does the rest of the work.
All of the changes we made were mostly routine and would probably have happened whether or not 2020 had been a volatile year. We made a minor adjustment to the methodology in the T2 strategy and brought Avantis on board as a new manager. We did some tax-loss harvesting for clients after the March decline, and rebalanced many portfolios again later in the year. Routine rebalancing is magical in a year like 2020: We were able to buy stock funds cheaply around the middle of the year, then watch them recover and exceed previous highs before the year was over.
This year could be much wilder than 2020, or it could be a sedate, calm period more like 2017. There’s no way to know for sure, which is why our portfolios are designed to participate meaningfully in a broad array of market outcomes. The S&P 500 has had a shockingly successful run over the last few years, in both a relative and absolute sense. Its valuation is historically high right now, and we are confident that our allocation to value, small caps, international and even emerging markets will be a welcome complement to our domestic large cap funds in the coming years.
There’s an old saying that time in the market matters much more than timing the market, and it’s as true as ever today—no need to guess what might happen next. As we say often, nobody has proven to be particularly reliable at consistently correct predictions about the market over the long run. Telarray portfolios are designed to perform independent of any short-term market expectations.
A recent article looking forward to 2021 closed with something like “after experiencing a year like 2020, it’s hard for anyone to have confidence in their forecasts going forward.” What’s funny is that the predictions are always incorrect, it’s just that those people making the predictions feel more uncertain than usual this year!
If there’s one particular lesson to be learned from 2020, it’s that investor behavior is just as important as the actual stocks and bonds picked by our funds. At Telarray, we would say one of our proudest accomplishments is the clients we talked out of doing something drastic in the depths of panic in 2020.
This kind of advice is just as important as the actual portfolios we select, and our investments are just one facet of our comprehensive financial planning process. In the coming years, there are certain to be dramatic highs and lows in the markets. We won’t be busy trying to predict them, because we’ll be spending our time helping you navigate toward your secure financial future.