To say that 2020 has been a crazy year would probably be an understatement. From a global pandemic to a national economic crisis, the past nine months have been among the most challenging and stressful many of us have ever experienced.
But if there's one good thing that did come out of 2020, it's that I learned some important investing lessons I can carry with me. Here are the ones that stick out most in my mind.
1. Always have emergency cash
Back when the pandemic first erupted, unemployment skyrocketed overnight as stock values plummeted. A lot of people suddenly found themselves in a dire financial crunch, while those who had cash in the bank fared better. Having money on hand for emergencies is important at all times because it can not only help you avoid debt, but also help you avoid liquidating investments at a loss when a sudden need for cash arises.
I like to have at least six months' worth of living expenses in savings to ensure that I can ride out a period of economic upheaval without having to fall back on credit cards or other means of borrowing. On top of that, I like to keep a healthy chunk of cash on hand to invest during periods when the market takes a tumble, because that's a good way to make money.
To be clear, though, I never dip into my emergency fund for investing purposes. Rather, I stockpile a separate stash of cash to buy stocks with.
2. Don't react to downturns
In March, the stock market crashed as the pandemic really started to take hold. Anyone who sold off stocks at that time would've dealt with massive losses, while those who sat tight may be ending 2020 with more wealth than they started out with.
The stock market has a long history of recovering from downturns, and it's already managed to recoup its losses from earlier in the year. As long as you have money on hand to pay your bills, there's really no reason to rush to sell off stocks when things go south. If you do, you'll only guarantee those losses.
3. Keep the faith
Back in March, I thought we'd potentially be looking at a yearlong recovery for the stock market or longer. In fact, I was really worried for near-retirees -- that they'd potentially face untold losses or be forced to postpone that milestone indefinitely. But clearly, that concern was needless because the stock market bounced back quickly, even when things looked bleak.
The reality is that bear markets aren't always prolonged. While it's true that some have lasted years, the one we experienced this year lasted just over a month. Others have lasted just a handful of months, so don't assume the worst the next time there's a stock market crash.
It's been a wild year on the investing front, to say the least, but these takeaways will position a lot of people to be stronger, more educated investors going into 2021. Keep these points in mind as you navigate the ongoing pandemic and hope for better news as the new year progresses.