Dec 2020 Passive Portfolio Updates
The COVID-19 market crash was deep but quick. As we saw in the last passive portfolio update, the All Weather Portfolio has been the strongest performer. How did it actually perform this year during this very volatile period. Let’s have a close look.
The COVID-19 Market Crash & the Total Stock Market
Let’s first have a look at how the stock market did during 2020. To measure this, I am going to use the same ETF that I use in the All Weather portfolio.
This way we are comparing apples to apples.
The ETF is $VTI: Vanguard Total Stock Market ETF
This ETF tracks the performance of US Total Market Index which includes large-, mid-, and small-cap equities diversified across growth and value styles.
In other words, pretty much the whole equity market in the US.
The chart on the left is the performance of VTI since 2007. The chart on the right is the performance in 2020. Both portfolios started with $50,000. (Click for a larger image).
As you can see, there was a pretty significant drawdown in March 2020. However, that drawdown was not as big as what happened in 2008 where the Total Stock market saw a drawdown of over 50%!
The COVID-19 Market Crash & the All Weather Portfolio
So with an understanding of how the total stock market did since 2007 and in 2020 in particular, let’s look at how the All Weather Portfolio did.
The chart on the left is the performance of the All Weather Portfolio since 2007. The chart on the right is the performance in 2020. Again, both portfolios started with $50,000. (Click for a larger image).
Notice how small that drop was in 2020 for the portfolio. Even with a 20% drawdown in the market (see the 2020 image for VTI above), the All Weather Portfolio did not see a drop anywhere near that.
The reason is that the drop in VTI was offset by the other assets in the portfolio (hence the power of diversification). If you look at the table below, you can see that in March (month 3), even with a 13.91% drop in VTI and a 17.23% drop in commodities, the portfolio only lost 1.39% that month.
Remember that VTI dropped almost 14% in march.
Comparing VTI to the All Weather Portfolio
Now let’s compare a portfolio 100% invested in VTI with a more diversified portfolio like the All Weather portfolio.
The chart on the left is the performance of the All Weather Portfolio and “VTI only” since 2007. The chart on the right is the performance in 2020. Again, both portfolios started with $50,000. (Click for a larger image).
Notice how the All Weather portfolio performed in the GFC (2008) and the COVD-19 market crash. It was very strong through both of those periods.
There are a couple of very important points to consider the above data, and how to invest through a black-swan event like the COVID-19 market crash.
- Being diversified through market crashes is very important. Having the right mix of assets can protect your downside.
- Investing in 100% equities will make you more money. However, you need to be able to handle watching your account decline by 50% (or more) and NOT sell. The key is holding on.
- Emotions are the enemy of every investor. Sitting on your hands during market crashes takes an iron stomach. Most people panic and sell at exactly the wrong time.
- To manage your emotions, invest robotically. Use a passive system like the All Weather portfolio and stick to the rules. Buy it, rebalance annually, and never sell.
- You can increase the returns of that passive portfolio by investing in a system like the TQQQ Trading System at the same time (see this post on how to do that). You can add some active returns to your portfolio, while managing risk by adding a more active robotic system.
Diversification of both assets and investment styles is important. Invest robotically so you manage emotions and you will do well!