3 Financial Lessons The 2020s Have Taught Us (So Far)

the 2020s have gotten off to a bit of a rocky start at least when looking at market performance relative to some other decades like the 2010s in 2020 we had a major market crash which saw the S P 500 fall roughly 34 from its previous all-time highs and at least by one metric 2022 saw one of the roughest Market downturns of the past Century today we're going to be taking a look at each of the downturns we've experienced this decade both from an individual investment perspective and from a more Diversified portfolio perspective comparing them to other Market downturns throughout investing history and discussing three potential lessons that can be learned from them going forward but before we get going be sure to like this video if you haven't already as it really does help out the channel a lot and subscribe with notifications on for more money related videos like this one every single week and if you want to further support this channel you can check out some of the links I've left in the description below which includes a 30-day free trial of audible and two free audiobooks of your choice as well as a list of some books on money I'd recommend checking out with your free trial so as I said the 2020s have gotten off to a bit of a rocky start 2020 saw stocks dip quite quickly starting in mid-February however they recovered basically just as quickly setting new highs that August so by the end of the year things actually looked quite good in fact between the 19 different categories of U. S and international stock indexes that I track 18 of them had positive returns that year or a win rate of about 95 percent the average return for that year was 16 for those indexes and the only index that was down was the international small cap stock index which lost 2. 8 percent bonds from one perspective actually fared even better with a 100 win rate and average returns of about 6. 6 percent 2021 saw the broader stock market Rising pretty consistently with the S P 500 jumping around 28 percent and posting a 100 win rate across all stocks that I tracked bonds struggled a bit more posting average returns of negative 0. 4 percent and a win rate of just 38 for the year then 2022 began the process of a slower and more protracted downturn that stocks are still attempting to recover from to this day but what separates 2022 from the prior two years and honestly most down years in general throughout Market history is the fact that there was virtually nowhere for investors to hide due to a number of factors from the economic conditions of the time the lingering effects from the previous couple years the interest rate hikes and more a stunning 36 of the 39 investment categories that I tracked for this video which Encompass stocks bonds real estate and alternative Investments like Commodities and precious metals lost money for inflation that's a win rate of just 7. 7 percent which is the lowest for any year since the late 1920s the only investment categories that saw their values rise again before inflation were t-bills up 1. 5 percent gold up roughly seven percent and commodities up 24 given that inflation for the year is estimated to be around 8 percent give or take the only category that would have maintained its purchasing power for the year would have been Commodities that's what you call a rough year even if the losses were not as deep as they were in other major downturns like the Great Recession or Great Depression the average depth of losses for all asset classes based on the indices that I tracked for this video was a little under 18 for stocks 10 for bonds six percent for precious metals and commodity-based Investments and around 26 for Real Estate although it is worth noting that that's in the form of REITs for all assets combined the average nominal depth of loss was around 15 percent compare that to some of the deepest down years in the last century such as the three that you can see on your screen now and you quickly realize that as bad as it was it could have been worse with that being said it was still a very rough year and as you can imagine with that seven percent win rate even the most well Diversified investing portfolios tended to struggle in 2022 as you can see on your screen now most basic portfolios posted positive nominal returns in both 2020 and 2021 but in 2022 almost all of them lost money and usually the losses reach double digits so what takeaways can we glean from this time period well there are several potential ones but I want to focus on just three today the first takeaway is that the fundamentals are still crucial to finding sustainable financial success prior to 2020 it had been a while since we'd had a deep crash in the markets yeah 2018 was a down year but for most of the 2010s markets were pretty Cooperative prior to 2022 it had been a while since we had a prolonged downturn especially one that was accompanied by elevated inflation and the changes in interest rates that often accompany it we've experienced both of those scenarios now and while I have no doubt that the markets and inflation will eventually get back on track and thus far 2023 has had a promising start to that these things take time and that's broadly fine if your financial foundations are solid in other words if you regularly budget or at least maintain control of your spending keep

your burn rate and debts to manageable levels maintain a healthy savings rate and emergency fund and avoid doing things like over leveraging your assets and Investments then barring some major bad luck you'll probably be able to ride out the few years that it typically takes for these noteworthy downturns to fully work themselves out but if for one reason or another you aren't able to do these things it can be tougher to keep your head above water financially over the long run the second takeaway is that we've been through worse in the past and come out the other side just fine the 2020s have gotten off to a rough start the there's no doubt about that similar to the early 1980s we've experienced two notable downturns in the first few years of the decade and as we saw 2022 was at least by some measures one of the roughest individual years of the past Century especially when considering the impact of inflation on our buying power but even with all that most well-diversified portfolios and even individual asset classes have still managed to make money during the decade to date so if you found yourself stressing out about your asset allocation or other aspects of your finances that are within your control it may be beneficial to consider whether or not some tweaking to your financial approach is in order if not take comfort in the fact that this too will pass in time the third takeaway is that over the long run successful Financial approaches rarely change all that much even if the metrics we measure them by do let me explain diversification is generally considered to be a solid long-term Financial approach as are the other fundamentals we discussed a minute ago but it can be overshadowed by outliers per produced using riskier or just less reliable approaches some examples in the investing world would be things like leveraged investing day trading Trend chasing and hyper-focused allocations there's no denying that under certain circumstances these approaches can outperform the more tried and true strategies and sometimes to a staggering degree especially in metrics that tend to change a lot more over time like the 10-year rolling return figures which by definition change at least once a year and regularly by more than many might think but the key is determining when those ideal conditions are going to take shape so that you can position your investments in a way that benefits from the approach as much as possible and then shift your strategy to a different approach before that ideal environment disappears truth be told predicting the future of investing markets like that is extremely difficult to do with any sort of consistency over the long run which is why most people who try to actively invest their money as opposed to Simply taking a Buy and Hold passive index approach tend to underperform their bench Mark indices over the long term even if they do manage to outperform significantly during small pockets of their investing career years of financial studies have indicated this these approaches are never going to entirely go away though because there is always the chance to outperform the markets some investors do it every single year and whether due to having a different financial situation instead of goals or simply due to discouragement of recent underperformance on the part of the markets we can find ourselves tempted to make a switch sometimes this switch is for the best if the switch better aligns our finances with our personality risk tolerance life situation and goals but other times it's not particularly if we're making the switch as an emotional reaction born out of recency bias so in summation during our financial lives will likely live through several different Financial environments with outcomes that can be difficult or even impossible to predict ahead of time think of everything that's happened in the last 40 to 50 years that many recently retired individuals would have lived through for instance and that unpredictability is one of the reasons why those who stick with tried and true approaches tend to find more sustainable financial success than those who regularly try to over optimize their financial progression these tried and true approaches may never be the best performers in any individual environment in fact almost by definition they never will be but they do tend to perform good enough in a wide variety of environments that long-term sustainable reliable financial success is achievable to those that diligently work toward it and just as a final side note before wrapping this video up I wanted to take a look at how safe withdrawal rates have been holding up now that we've had a more protracted downturn to add to the data set and as it turns out most of them have thus far remained largely the same here's a quick summary of the 30-year safe withdrawal rates for a handful of asset allocations we've looked at on this channel prior to 2020 and as of the start of 2023. as you can see there wasn't any difference between the two despite us experiencing a pair of downturns and elevated levels of inflation to start the decade at least in terms of the 30-year safe withdrawal rate there were some differences in the Perpetual withdrawal rates simply because the latest year in the data set 2022 in this case was a down year but even then the differences were generally fairly small for example the all-stock approach saw its Perpetual withdrawal rate fall from 3. 20 percent when only looking through 2019 to 3. 18 when looking through the end of 2022. so a difference but not a huge one which is

always comforting to see but that'll do it for me today once again if you enjoyed this video be sure to smash that like button if you haven't already subscribe and hit that Bell next to my names you'll be notified of all my future uploads if you have a friend that would be interested in this kind of content be sure to share it with them let's really get this information out there and start our own Financial Revolution