Looking Backwards is No Way to Invest Moving Forwards
The problem with looking backward is you miss the opportunities ahead. 2020 was one for the history books.
The COVID-19 pandemic was a once-in-a-lifetime event and not likely to happen again soon, and if we get stuck in the past, we may prevent ourselves from moving forward.
How would looking back at 2020 give some investors trepidation about moving forward in an uncertain environment?
Looking back at 2020 can give an investor a pessimistic view about the economy and anxiety about investing moving forward. GDP was down 3.5% in 2020, the worst year for growth since 1946. Unemployment hit levels not seen since the Great Depression.
Looking back is a natural instinct. Our cave-dwelling ancestors constantly had to watch their backs to keep an eye out for predators. We treat investing the same way. We’re constantly looking back for danger signs and predators that prevent us from seeing the waterhole teeming with deer we could have hunted to feed our clan.
You can’t drive just using your rearview mirror. Why do the same with your investing? If you get mired in 2020, this is what you can potentially miss in 2021 and 2022.
The COVID vaccine seems to be working. The nationwide rollout of the vaccine has seen a corresponding reduction in cases. This will open up the economy. According to the CBO, GDP is expected to expand, and unemployment is expected to drop.
GDP growth is expected to return to pre-pandemic levels as early as mid-2021. Unemployment is expected to decline through 2026, according to the CBO, gradually. And with the third round of stimulus checks coming, the economy should kick into high gear.
As states ease their mask mandates and social distance restrictions, bars, restaurants, and social gatherings should all see a boost. The pent-up demand for travel, entertainment, and social events is unprecedented. People are itching to get out, and once the floodgates open, the economy should pick up a head full of steam.
As we look to 2021 and beyond, am I saying we can’t learn from the past? No. But learn to differentiate. Look at the cause and symptoms of 2020. Those causes and symptoms are not likely to last. Learn to differentiate between the things that will continue and those that will change – with an eye on the future. That’s the key.
If we let pessimism rule because of 2020, we drown out the optimism for 2021.
In 2021, COVID-19 will not affect society and the economy as it did in 2020. That will clearly not continue. Of course, it has changed society and the economy in permanent ways.
Still, if we recognize this and invest moving forward with an eye on this “new normal,” we’ll be able to take advantage of the opportunities before us.
When people look back at 2020, a certain four-letter word probably comes to mind. Looking forward to 2021 and beyond, a new four-letter word should take its place: hope.
The pandemic was a once-in-a-lifetime event that left devastation in its wake, but if we invest with hope and with an eye moving forward, we can take advantage of the great rebound from this pandemic that is already in motion.