2020 was a turbulent year, and that turbulence included the stock market. Investors saw rapid swings in their portfolios -- often in a matter of weeks.

New and experienced investors had to choose how they would respond to this volatility. Did they buy more stocks? Sell more? Keep money out of the market to avoid the volatility? Or stay the course and not do anything differently?

We wanted to know. To find out, we surveyed 2,000 American investors, including those who had been investing for decades, rookies, and everyone in between.

Read on to learn how investors approached one of the most volatile markets of all time.

Key findings

  • The most common action investors took in response to market volatility was buying stocks -- 45% of investors bought shares because of volatility in 2020.
  • Investors with 10 years of experience or more were the most likely not to do anything differently in response to market volatility -- 30% of them stayed the course through 2020.
  • Women were more likely than men to not change their investing actions because of market volatility, reflecting their generally calmer investing style.
  • Preventing financial losses was the most common reason investors sold their stocks, but many people also needed cash, including over 55% of Generation Z investors who sold stocks.
  • Investors with 10 years of experience or more were more likely to sell stocks to reinvest in better opportunities or capitalize on a rise in value in 2020.
  • 45% of investors thought they made money with their response to market volatility in 2020, but over 20% of new investors aren't sure how they fared.

How volatile was the stock market in 2020?

Market volatility reached an all-time high in 2020 per the CBOE Volatility Index (VIX).

The VIX is a common gauge of stock market volatility. A higher VIX corresponds to a more volatile, unsettled market. Here are the VIX ranges and their levels of volatility, according to the S&P Dow Jones Indices:

  • 15 and below: Low; indicates optimism in the market.
  • 15 to 20: Moderate; indicates a normal market environment.
  • 20 to 25: Medium to high; indicates growing concern.
  • 25 to 30: High; indicates turbulence in the market.
  • 30 and above: Extremely high; indicates extreme turbulence in the market.

The VIX skyrocketed as the COVID-19 pandemic grew more serious. It closed at an all-time high of 82.69 on March 16. Although it dropped from there, it was above 20 for the rest of the year with several spikes above 30.

The only recent year on record with similar volatility was 2008, during the height of the Great Recession.

This volatility made investors anxious, with 85% of our respondents saying they experienced some anxiety around the market in 2020. Over half said they were "somewhat" or "very" anxious.

What did investors do in response to market volatility?

Investors were anxious about a highly volatile 2020 stock market, and many of them bought or sold shares in response.

Nearly half of all investors bought stocks, and about a third chose to sell shares or keep money out of the market due to volatility. Just over one in five didn't change their normal investing habits.

Did you take any of the following actions because of market volatility in 2020?

Bought stocks Sold stocks Kept money out of the market Didn't do anything differently
44.95% 32.30% 32.25% 21.40%

It's important to note that none of these actions are necessarily right or wrong. Every investor's situation is different, and there are valid reasons for all the actions above.

There were some clear differences in the actions taken by new and experienced investors. Those with a year or less of experience typically chose to buy stocks ahead of any other course of action. They were also the least likely to sell stocks or keep their money out of the market.

Investors with 10 years or more of experience were the most likely to stay the course and not do anything differently. They did have one thing in common with the newest investors, though -- they generally didn't choose to keep their money out of the market.

Action 1 year or less investing experience 2–5 years investing experience 6–10 years investing experience 10+ years investing experience
Bought stocks 45.37% 45.53% 46.38% 41.98%
Sold stocks 24.23% 35.21% 37.20% 31.11%
Kept money out of the market 25.33% 35.90% 38.89% 26.67%
Didn't do anything differently 24.23% 16.78% 17.63% 30.37%

Research on women in investing has consistently shown that women are less impulsive investors than men. That held true in 2020, as 28.13% of female investors said they didn't do anything differently because of market volatility, compared to just 15.58% of male investors.

Why did investors buy stocks in 2020?

Investors had many different reasons for buying stocks in 2020. Here are the factors that influenced the stocks that investors bought in response to market volatility (respondents were allowed to choose multiple options):

  • Opportunity to ride the momentum of fast-rising stocks: 34.26%
  • Industries that were unaffected by COVID-19: 21.36%
  • Recommendation from an advisor, broker, or service: 21.13%
  • Historical stability: 20.02%
  • Dividends: 17.46%
  • Other: 6.34%

Across all demographics, the most popular reason to buy stocks was to capitalize on a fast-rising security. 2020 was an interesting year for growth stocks, with some companies capitalizing on COVID-19 and others suffering because of it.

It was, however, less common with the most experienced investors. Among those with 10 years or more of experience, a comparatively low 27.65% bought stocks for this reason.

Instead, many experienced investors considered the historical stability of particular stocks as well as the dividends they paid out -- though dividends were less likely to be a decision-making factor than you might expect, considering how popular dividend stocks are.

Why did investors sell stocks in 2020?

Investors sold stocks for many reasons in 2020. Here are the reasons given by the respondents who said they sold stocks due to market volatility (respondents were allowed to choose multiple options):

  • Prevent financial losses: 42.11%
  • Needed cash: 39.94%
  • Reinvest in better opportunities: 37.15%
  • Capitalize on a rise in value: 35.14%
  • Keep money out of a volatile market: 31.11%
  • Rebalance my portfolio: 29.41%
  • The stock(s) looked overvalued: 28.95%
  • An advisor, broker, or service told me to sell: 25.08%
  • Other: 4.80%

We saw the starkest difference between new and experienced investors in this area.

Investors with 10+ years of experience were far less likely to sell because they needed cash. The portion of investors who sold to reinvest in better opportunities or capitalize on a rise in value also went up with higher levels of experience.

Reason for selling 1 year or less investing experience 2–5 years investing experience 6–10 years investing experience 10+ years investing experience
Needed cash 36.36% 47.66% 38.31% 29.37%
Reinvest in better opportunities 33.64% 34.38% 40.91% 41.27%
Capitalize on a rise in value 24.55% 30.86% 38.31% 49.21%

The youngest investors were overwhelmingly more likely to sell stocks because they needed cash. Here are the percentages from each age range who sold because they were short on funds.

Sold stocks in 2020 because they needed cash

  • Investors ages 18–24: 57.14%
  • Investors ages 25–34: 36.02%
  • Investors ages 35–44: 41.74%
  • Investors ages 45–54: 30.99%
  • Investors ages 55+: 25.37%

While it's not great to be in a position where you need cash, that's one of the five reasons we recommend selling a stock -- so it's very understandable.

How did investors rate their performance?

Finally, we asked investors to assess how they did last year. Nearly half thought they came out ahead.

How do you feel about your response to market volatility in 2020?

I think I made money I think I broke even I think I lost money I'm not sure
45.65% 22.15% 19.45% 12.75%

Experience made a big difference here. More experienced investors were more likely to believe they made money. Those with 10 years or more of experience were also the least likely to believe they broke even or lost money.

An issue that stood out among the least experienced investors was not knowing how their portfolio performed. This group was nearly twice as likely as any other to respond that they didn't know how they did.

Perception of 2020 investing performance 1 year or less investing experience 2–5 years investing experience 6–10 years investing experience 10+ years investing experience
I think I made money because of how I responded to market volatility in 2020 40.53% 45.39% 45.89% 51.60%
I think I broke even because of how I responded to market volatility in 2020 20.48% 25.45% 20.77% 19.51%
I think I lost money because of how I responded to market volatility in 2020 17.18% 20.91% 21.74% 17.04%
I'm not sure how I did 21.81% 8.25% 11.59% 11.85%

A much higher portion of female investors (17.24%) didn't know how they did compared to male investors (8.86%). This could be in part because male investors tend to review their accounts more often.

A year unlike any other led to diverse investing strategies

We saw quite a few different approaches to market volatility in 2020. Buying stocks was the most popular, although sizable portions of investors chose to sell or hold on to their cash.

The most experienced investors seemed to be less impulsive and more stable with their investing strategies. They were the most likely to follow their usual approach. When they sold stocks, it was most often to reinvest or capitalize on new opportunities, not because they needed cash. 

This is the kind of approach we encourage here at The Motley Fool. Invest in great companies and hold your shares for a long time, regardless of a volatile year here or there. (Though we certainly understand that many people needed to sell last year -- we saw high numbers of people experiencing income loss, and that creates an urgent need for cash.) 

Fortunately, almost seven out of 10 investors believed they either made money or broke even. A strong rebound by the stock market played a large role in that, but it's still good news that the majority of investors didn't lose money.

Methodology

The Motley Fool distributed this survey to 2,000 American adult stock investors via Pollfish on February 11, 2021.

Respondents were 46% female and 54% male. Age breakdown was approximately 15% 18–24, 23% 25–34, 35% 35–44, 13% 45-54, and 13% 55+.

Sources