3 Financial Lessons from 2020
Christie A. from Raleigh, N.C. asks: Hello Mitch, I hope you had a nice holiday and happy early new year. I’m curious if you have any financial lessons from 2020 you could share. Trying to get off to a strong start in the new year!
Thanks for writing Christie, and I also wish you a happy holiday season!
2020 was a pretty lousy year for many people in many different ways, but hopefully you were able to find some silver linings along the way. Most of the obvious silver linings come from realizations about health, family connections, and aspects of life that are most important to you. I would argue that financial well-being should be near the top of this list, too, and I’m glad you’re thinking about it as the year turns. I have three lessons I’ll share with you.
Goodbye 2020, hello 2021! This year was filled with unexpected events that may have played a part in your investing decisions. Knowing that the current pandemic completely shifted the market this year, what can we expect in the market next year?
Reflecting on the year will give you a better idea of the
right choices to make when preparing for your financial future in 2021.
We are giving you a look at 2020’s most important developments to guide you in
making your future decisions!
If you have $500,000 or more to invest, download our free guide, 2020 in Review: An Uncertain Year with a Clear Investment Takeaway. This guide gives you a detailed look at the most significant events of the year, with analysis of the potential effects of these developments in 2021.
Lesson 1: The first lesson is remembering the critical value of maintaining an emergency reserve fund. Millions of Americans lost work this year, which tested financial well-being across many households.
But there are also retirees who use their retirement accounts and investment portfolios for cash flow, which meant potentially having to raise cash during a bear market. With an emergency reserve fund – which I usually like to see as one year’s worth of income replacement – working households and retirees could have significantly softened the impact of a tumultuous year that included a deep recession and bear market. In 2021, if you do not have emergency reserves, or you need to replenish yours, I think this should be a high priority.
Lesson 2: The second lesson is remembering one of the most critical lessons of investing: keep your emotions separated from investment decision-making. 2020 was a lot of things, but it was certainly filled with emotions about health, politics, safety, economic opportunity, to name a few! All of these swirling emotions were paired with a steep bear market – where the S&P 500 plummeted over -30% in just over a month – and a recession that we’re still clawing our way out of. Yet from an investment perspective, one of the smartest decisions an investor could have made in 2020, in my view, is keeping a steady hand and staying invested in accordance with long-term goals.
Lesson 3: The third and final lesson is to take some time to think about your estate plan. Many lives were lost in this pandemic, and our hearts go out to families most affected this year. I think the hardships of the year should remind us of the importance of putting an estate plan in place, so you can protect the assets you’ve worked hard to accumulate over your lifetime. Start with the basics – making sure you have an updated will and that beneficiaries on your accounts are up to date. More detailed planning may include exploring trusts for your assets, so you can better control how they are distributed after your death. Healthcare planning is important, too.
Overall, I think the key takeaways after a challenging year are to look for ways to make financial planning more of a priority, with the above three lessons offering what I think is a great place to start.
2020 has truly been a historic year. From the effects of the pandemic to the latest presidential election, numerous events occurred that resulted in market volatility. As we enter 2021, there is no way investors can predict where the market is headed. Reflecting on this year will give you a better idea of the right decisions to make when preparing for your financial future in 2021.
If you have $500,000 or more to invest, download our free guide, 2020 in Review: An Uncertain Year with a Clear Investment Takeaway.”2 This guide gives you a detailed look at the most significant events of the year, with analysis of the potential effects of these developments in 2021.
2 ZIM may amend or rescind the “2020 in Review: An Uncertain Year with a Clear Investment Takeaway” guide for any reason and at ZIM’s discretion.
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