Good things have come to fund investors who waited in 2020. But what a terrifying expectation it was.
Mutual funds and exchange traded funds in all categories generated strong annual returns, even better than usual. Consider the largest asset fund, a core holding of many 401 (k) accounts. The total fund of the Vanguard stock market index returned 19.5 percent on December 22, more than double its average annual performance since 2000.
But first investors had to withstand a 34% plunge from February to March. Only by resisting the desire to sell and bypassing the panic caused by the pandemic would they have made that full profit.
Unfortunately, many investors did not have the determination or ability to resist. Job losses, cash crises and simple fear have led many investors to give up their shares.
For most of this year, investors withdrew more money from US mutual funds and ETFs than they put. It is a continuation of a trend of years, as investors have constantly moved money from equity funds and bond funds.
Bond funds, in turn, have largely fulfilled their traditional roles as constant forces for portfolios in stressful markets. They supported much better than equity funds in early 2020 and also typically produced consistent returns for that year. This is despite early warnings in early 2020 that bond investors should probably accept lower returns, given how low the returns were.
The average medium-term core bond fund returned 7.3% in 2020 to December 22, according to Morningstar. This is almost double the average annual yield over the last decade.
But even within these stable stereotypical funds, investors have had to endure a few days of unbridled panic. The largest bond fund in assets had a two-day spread, where it fell by 1.7 percent and then another 1.6 percent. There has never been such a sharp decline during the 2008-09 financial crisis or intermittent interest rate hikes in the 1990s.
As in the case of actions, those great movements were also a product of fear. During the deep market, investors struggled to raise as much cash as they could. In many cases, this meant selling high-quality bonds, as these were the easiest things to sell, which caused their prices to fall.
When fears peaked in March, investors withdrew nearly $ 230 billion from taxable bond funds and ETFs, according to the Investment Company Institute.
Gold funds sparkled in 2020, as investors sought a safe place to hide from the tumult.
Gold funds have a reputation for protecting against inflation, and the Federal Reserve has said it will eventually let inflation exceed the 2% target as it seeks to end the economy. But investors have had to face sharp sales in March to reap all the rewards. The largest gold ETF had a week in March, where it lost 9.1 percent.
Nothing in 2020 has been easy, even if it has proven to be profitable. The best thing is that it’s finally over.