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Highlights
- The stock markets witnessed a V-shaped recovery in 2021 because of the successful roll-out of the vaccination program and positive sentiments around economic recovery.
- 2021 was a great learning year for the investors and taught some of the most valuable investment lessons.
2021 can be considered a revival year for the global and domestic stock markets following a significant downfall in 2020. The Covid-19 pandemic and multiple lockdowns adversely impacted the economy, which resulted in a sharp decline in the stock market.
Nevertheless, individuals who believed in their investment theory and stayed invested throughout the pandemic period have been rewarded with excellent returns this year. The UK stock market blue-chip index, FTSE100, delivered a total year to date return of 15.90%, while the mid-cap focused FTSE250 index has given a YTD total return of 13.82% to investors, as of 6 December closing.
The stock market indices witnessed a V-shaped recovery in 2021 because of the successful roll-out of the vaccination program and positive sentiments around economic recovery. In addition, 2021 was a great learning year for the investors and taught some of the most valuable investment lessons.
Let us look at some of the key investment lessons of 2021 that investors can follow and implement in their investment journey:
The cycle of Greed and Fear
One of the famous quotes in the investment community: “Be fearful when others are greedy and be greedy when others are fearful”. Many investors witnessed a real version of this quote in 2021. At the start of the pandemic in March 2020, many fearful investors sold off their long-term investment, which resulted in the decline of many fundamentally good stocks. Many investors predicted a decline in stock markets, which will take many years to recover due to economic slowdown.
However, the global stock market showed excellent recovery in 2021, and those individuals who went ahead and took the risk of enlarging their investment during the market crash when others were fearful were rewarded with a high return on investment.
Investment in the future
Many new investment strategies and assets emerged during the pandemic and lockdown period. Investment in cryptocurrencies like Bitcoin, Dogecoin and many others rose significantly in 2021. Many investors have started considering cryptocurrency as a new asset class to spread their portfolios. In addition, investors looked for investment opportunities in companies operating in niche segments like lithium battery makers amid the rise of electric vehicles, companies operating in the data protection and cybersecurity segment because of the increased use of technology in every industry in recent years.
Equities to beat inflation
The UK witnessed the highest inflation levels since 2011, which is expected to rise further to the 5% level in upcoming months, which means rising inflation will result in lower real returns derived from the fixed-income investment. Hence, investors started considering investing part of their savings in the equities market to beat rising inflation.
Investment behaviour
At the start of the pandemic, many investors’ immediate reaction was to sell off all holdings and take money away. However, some investors bought more shares during the crash. If the investors initially planned to invest in stocks for long-term goals, then any short-term market events should not act as an emotional trigger to sell-off portfolios. This was another important lesson learnt during the passing year.
