6 financial lessons for 2021

Jan 04, 2021
Morningstar experts share the lessons they learned in an unprecedented year

The year 2020 has been a rollercoaster ride for investors. At Morningstar, we are constant learners. A few colleagues share their take-aways from 2020.

Don’t be afraid to talk about money - Susan Dziubinski, Content Director, Morningstar

My biggest financial lesson in 2020 was to keep your estate plans in order and up-to-date -- and to clearly communicate those plans to your beneficiaries and named agents. The pandemic served as an all-too-real reminder for my husband and I to revisit the terms of our wills, trusts, and powers of attorney.

Call us morbid, but we crafted our plans 15 years ago when our children were just toddlers. Circumstances have changed for us since then and our estate plans needed updating as a result. Now that our children are old enough, we were able to have “the talk”--about our estate plans, that is. The discussion was not easy but important. Now my husband and I have some much-needed peace of mind.

Stick to the basics - Mike Coop, Head of Multi-Asset Portfolio Management, Morningstar Investment Management

The 2020 crisis was more shocking than 1987, 1994, 1998, or 2008 because of the risk to life, the lack of warning signs, and the nagging feeling that governments were less unified and had less capacity to respond than in prior crises.

In dealing with this huge uncertainty, the simpler strategies turned out to be remarkably effective: portfolio rebalancing, valuation, and looking for signs of panic. Committing to a plan makes it much easier to make decisions when the house is on fire--and March was the critical juncture when you either followed the dire forecasts and predictions and hit “Sell,” or looked at the discounts on offer and took the plunge to hit “Buy.” It could easily have got worse, but if you don’t buy when assets are cheap, when do you?

Practice what you preach - Alex Morozov, Director of Equity Research EMEA

As someone who started his career in equity research right around the time the global financial crisis hit, I didn’t think I could still be surprised by the market. Well, another lesson learnt.

While the magnitude of the market turbulence we witnessed in 2020 wasn’t necessarily unprecedented, the underlying cause and the swiftness of the market swings were, and the urge to sell stocks and hide in the relative safety of cash almost led me to violate all my own personal investment tenets.

Thankfully, I ended up resisting the temptation to jump off the market rollercoaster and this turned out to be the right move, but my hesitation to invest more meant I missed out on one of the greatest, fastest rallies ever by not taking the opportunity to invest. So, what’s the lesson? Turns out it is much easier to tell folks what they ought to do rather than doing it myself.

Don’t be greedy - Sylvester Flood, Chief Content Strategist, Morningstar

I’ve invested in Amazon, Zoom and Tesla at various times over the past five years and when most stocks fell in March, these stocks didn’t. As a result, they looked overvalued to me, so I sold them. I didn’t sell out of fear but because I wanted to invest the proceeds in cheaper stocks and make more money.

Needless to say, the continued rise of Zoom and Tesla has been somewhat unbearable for me, though the recent comeback of some of the value names I replaced them with has restored some of my confidence in my judgment.

I’ve realized that while investing in cheap stocks is less risky over the long run, sometimes it comes at the expense of riding the wave of a few truly transformative, successful businesses. Which leads me to my biggest practical lesson of 2020: Do nothing whenever possible. Remember why you invested in those companies in the first place and log out of your investment account.

Don’t be Mr (or Mrs) Market - Jon Miller, Director of Manager Research Ratings UK

Benjamin Graham coined the term "Mr Market," referring to an investor who is susceptible to the panic, euphoria, and apathy that comes with stock market investing. They make decisions based on emotion and daily fluctuations, but forget about the bigger picture. But stock markets are forward-looking and can start factoring in positive future earnings, seemingly without rhyme or reason, and they aren’t aligned to economic growth so you can’t time when things will turn.

This year, I was struck by a comment from Tesla founder Elon Musk on the firm’s 580% share price gain and entry into the S&P 500: “When looking at our actual profitability, it is very low… Investors are giving us a lot of credit for future profitability, but if at any point they conclude that's not going to happen, our stock will immediately get crushed like a soufflé under a sledgehammer!” Food for thought when we consider Mr. Market’s tendency to euphoria.

It's not all about money – Christine Benz, Director of Personal Finance, Morningstar

This crazy year has given me a bit more time for introspection. One thing I've been thinking and learning about, is making mindful allocations of time.

We spend so much energy talking about how people should allocate their financial capital, but less on how to allocate time, even though it is finite and, therefore, more precious than financial capital. Ideally, we could all use this very peculiar period, when activities have slowed down and we can't do many things we love, to take stock of which activities we miss most and which we don't miss at all.

In 2020 lessons from FinTwit influencers, we reached out to 15 Twitter influencers from around the world- Toronto, London, Melbourne, The Cayman Islands, India, U.S. Quite a few were unanimous on the power of resilience. Many realised that we “don’t know nothing”. Uncertainty must be embraced.

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