Good things funded investors waiting in 2020. But it was a scary wait.
Mutual funds and exchange traded funds of all stripes have yielded strong annual returns, even better than usual. Consider the largest fund by assets, a core asset of many 401 (k) accounts. Vanguard’s total equity market fund traded 19.5 percent on Dec. 22, more than double its average annual performance since 2000.
First, however, investors had to resist a 34 percent dip from February to March. Only through the urge to sell and sidestep the pandemic causing panic would they get the full proceeds.
Many investors unfortunately did not have the determination or the ability to hold on to it. Job losses, cash shortages and common fear have caused many investors to withdraw their shares.
For most of this year, investors have drawn more money from U.S. equity funds and ETFs than they have put in. This is a continuation of a year-long trend as investors have gradually shifted money from equity funds and into mutual funds.
Mutual funds, in turn, have fulfilled their traditional roles as stable forces for portfolios during stressful markets. They performed much better than equity funds in early 2020 and they usually also delivered good returns for the year. This is despite warnings at the beginning of 2020 that investors in bonds are likely to have to accept weaker returns given the low returns.
According to Morningstar, the average core mutual fund for intermediate term yielded 7.3 percent in 2020 to December 22nd. This is almost double its average annual return over the past decade.
But even within these stereotypically stable funds, investors had to endure a few days of unbridled panic. The largest asset fund by assets stretched two days, where it plunged 1.7 percent and then another 1.6 percent. It has never been such a decline during the 2008-09 financial crisis or during volatile interest rate rises in the 1990s.
As with equities, the big moves were also a product of fear. During the depth of the sellout of the market, investors tried to raise cash but they could. In many cases, this means selling high quality bonds because it was the easiest to sell, which caused their prices to tumble.
When fears peaked in March, investors raised nearly $ 230 billion from taxable mutual funds and ETFs, according to the Investment Company Institute.
Gold funds flared up in 2020 when investors sought a safe place to hide.
Gold funds have a reputation for protecting against inflation, and the Federal Reserve has said it will eventually push inflation above its 2 percent target while trying to goose bumps in the economy. But investors still had to experience a sharp sell-off in March to reap the full benefits. The largest gold ETF had a week in March, with 9.1 percent.
Nothing in 2020 was easy, even if it turned out to be profitable. The best thing is that it’s finally over.