Summary

2020 is finally over. And what a year it was! Among other things, we experienced:

A global pandemic
Virtual learning for many students
A significant decline in financial markets
The most rapid onset of unemployment in U.S. history
The release of a stimulus bill
A significant recovery/increase in financial markets
A presidential election
The creation, testing, and approval of multiple vaccines for COVID-19
Zoom fatigue

Despite all of that, the financial markets performed surprisingly well during 2020.

The previous sentence will provide little solace to anyone who (a) didn't own any investments during 2020, or (b) experienced unemployment due to COVID-19. If you owned investments andmaintained your job during 2020, this is a reminder of just how fortunate you are.

2020 Numbers

The average diversified U.S. stock fund, which is a better measure of how we invest than the S&P 500 or the Dow, gained more than 19% during 2020. This is remarkable considering the S&P 500 plummeted more than 34% over just 23 trading days in 2020, which is the fastest decline of that magnitude in history. Investors, justifiably spooked, pulled $258 billion from US stock funds during 2020.

International stocks also had a good year: The average diversified international stock fund rose nearly 13%. Investors demonstrated more confidence in international stocks funds by pulling out only $108 billion out of those funds during the year.

The average intermediate-term bond fund gained just over 8.0% during 2020. In a flight to safety, investors plowed nearly $445 billion into bond funds during the year.

Returns By Category

Need a magnifying glass to read this? No problem. Here's a link to a PDF of this chart.

The chart above provides a high-level view of how the asset categories performed monthly from January - December 2020 and for the full year of 2020.

I love this chart and always look forward to seeing the updated version. Two takeaways:

Notice any patterns? If you answered "yes", we need to talk because your brain operates on a different level than mine. It's nearly impossible to consistently predict which categories will perform best from year-to-year or month-to-month.
This chart is Exhibit A for why it's prudent to build diversified portfolios. Sadly, diversification means you're always having to say you're sorry because it's rare for every category to produce positive returns.

Winners and Losers

Here's what worked (winners) and what didn't (losers) in 2020:

For example, it's now obvious to investors that companies in the information technology category, such as Apple, Microsoft, and Zoom, performed well during 2020. While COVID-19 spread, employers and consumers had to rely on these companies for their work-from-home and entertain-from-home needs.

Another example of a winning category includes companies in the consumer discretionary sector. Stuck at home, consumers spent more money at online retailers like Amazon and Target. Home improvement companies, such as Home Depot and Lowes, also received a big boost as consumers spent time and money improving living spaces and upgrading home offices.

On the losing side, companies in the real estate sector had a rough year (see the chart above). Specifically, companies involved in commercial real estate lost business due to COVID-19-related slowdowns/shutdowns.

In retrospect, it's obvious why certain broad categories of investments or even specific companies were successful last year. During 2020, while so much about COVID-19 was unknown, it was nearly impossible to make these kinds of calls. Sure, minor course corrections could be made throughout the year, but knowing what to do with a high degree of certainty cannot be done consistently.

In March of 2020 I wrote that investing is hard. The takeaway from that post, focus on what you can control, is still true today.

2021

Sadly, my palantir is broken so I cannot tell you exactly what will happen in 2021. Here are some thoughts:

Barring further shenanigans or acts of insurrection, Joe Biden will be inaugurated on Wednesday, January 20th, 2021. The world will not end, as some have predicted. Nor will the U.S. suddenly become a liberal paradise, as others have predicted. Mr. Biden and his administration will do some good things and some bad things. Given the state of the U.S., it will be an extremely difficult job.
Another round of stimulus is likely to be passed in the weeks or months after Inauguration Day. The exact form, such as direct payments to taxpayers or infrastructure spending, is still up in the air.
There will be changes to taxes and regulations. These changes won't cause the end of the world.
Doses of the vaccines will continue to be produced and distributed, which will mean businesses and schools will be able to reopen. The economy will slowly recover for everyone.
As usual, investors will adapt to the changes listed above.
Minor course corrections to one's portfolio are appropriate, but you should stick to your financial plan.
Whenever I need a laugh I will re-watch an episode or two of Ted Lasso on Apple TV+. I suggest you do the same.
If you're a regular reader, you know that I often insert references to Star Wars or other pop culture sources. I'm a nerd, so that's not going to change. This is the way.

Some Reminders

Wear a mask.
Wash your hands.
Get some exercise. Every. Day.
Limit your social media intake. More specifically, don't get your news from social media.
Read a book.