5 investment lessons I will apply in 2021

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Even experienced investors can still learn investment lessons and that’s been especially true this year. The coronavirus pandemic was a black swan event that no-one saw coming. The stock market doesn’t like uncertainty and so it’s no surprise that investors saw the FTSE 100 index fall below 5,000 earlier this year.

Did I panic? Not really. During these unprecedented times, I’ve learned my investment lessons and always stuck with a few disciplines. I applied these five lessons throughout 2020 and will continue using them in 2021. Let’s look at these in detail.

#1 – Keep calm and carry on

I must confess that when the unexpected event — Covid-19 — struck, I considered liquidating my portfolio… for a brief moment. But I had to restrain myself. In such times, I’ve learnt that holding your nerve and staying invested is better in the long run.

The falls in an investment portfolio are only paper losses and history shows that the stock market will always bounce back. I expect 2021 to be full of uncertainty and so I’ll keep calm and carry on.

#2 – Regular investing

Not even the great investor Warren Buffett can time markets. For this reason, I invest regularly to smooth out market volatility. Each month I set aside some money and buy a portion of my chosen investments. This may be shares, investment trusts or funds.

Regular investing means that sometimes I buy my preferred shares at a high price and other times at a low one. This kind of investment approach is referred to as ‘pound-cost averaging’. This strategy has helped me reduce the Covid-19 market volatility in my portfolio and I’ll continue to use it in 2021.

#3 – Diversification

Don’t put all your eggs in one basket. I’m sure we’ve all heard this statement before.

I’ve used diversification as an investment discipline, especially during the coronavirus pandemic. You can spread your risk by purchasing different investment vehicles including stocks, passive funds, active funds and investment trusts.

I also diversify my portfolio by investing across various asset classes, sectors and regions. This year the strong demand for remote working saw technology companies perform well. The US stock market also delivered stellar gains.

Diversification reduces the investment risk and market volatility in a portfolio. I’ll continue to stand by this investment discipline in 2021.

#4 – The long game

Investing is a long game and history has shown that the stock market rises over time, despite falling this year. I can’t time markets and high-profile investors including Nick Train also avoid trying to do this. Those who stick with investing over the long term should be successful.

I also remember the investment maxim that “it’s the time in the market not timing the market”. By investing over a long period, I can ride out peaks and troughs and not be forced to make any irrational decisions.

#5 – Don’t be afraid

Unexpected events such as the pandemic create opportunities for investors. The stock market carries a level of risk, but it allows me to buy some great companies at bargain prices.  

Picking the ‘perfect’ investment is an imperfect strategy. The stock market will reward investors, like me, who are willing to learn investment lessons, to be brave and to take on some risk. I expect coronavirus uncertainty to persist in 2021 and so will seize the investment opportunities presented to me next year.

Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.