2020: The Way to Wealth
March 17, 2021

2020: The Way to Wealth

In his 1758 essay, The Way to Wealth, Ben Franklin recalls a time he stumbles on a crowd gathering for an auction. Within earshot, a gentleman asks an elderly bystander what he thinks of the high taxes levied against them (by the Crown). The older man replies,

Friends…the taxes are indeed very heavy, and if those laid on by the government were the only ones we had to pay we might more easily discharge them; but we have many others, and much more grievances to some of us. We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly; and from these taxes the commissioners cannot ease or deliver us by allowing abatement.

We may also gripe about the terrible things that bully our investments. The changes in tax policy. The foolery of our politicians. Housing bubbles. Index bubbles. Pandemics. You name it. But, in his proverbial way, Franklin points out that we sometimes forget to address our interior tax collectors. What about the dues we impose on ourselves?

For example, running to cash when stocks skid. Chasing pop trends. Paying sacrilegiously high advisor fees. Or being charged for services we never use. Some of us even bet against Wall Street.

With as much self-taxation, how can we realistically expect to grow our investment? The way to wealth is paved by a disciplined, well-reasoned investment strategy—and the humility to recognize that we are the biggest threat to our portfolio.

Last Year Was Taxing

None of us enjoyed wondering when we’d be able to see our loved ones again— or worrying if we used the sufficient number of disinfectant wipes to sanitize groceries. None of us knew how to react to the news each day. And we certainly did not relish watching our accounts dwindle.

Needless to say, 2020 was tough. But there are a lot of lessons to observe.

One of the key lessons that we all learned…life is unpredictable. And despite the chaos, we are still tasked with financially supporting our life and reaching long-term goals. Some still need to save for retirement.  Some are still growing a college fund. Others are looking to turn a passion project into a business. You still need to grow your money— even when the world teeters on collapse.

That’s why we stay the course to help meet those goals. Our core philosophy holds that we maintain fundamental principles based on your investment goals regardless of what markets do. Because circumstances may change, but your investment needs do not.

Avoiding Downturns Returns

As 2020 began, the press reported that an unprecedented virus was spreading. Fear set in. The “goldilocks economy” stuttered. And we watched markets sink. It was troublesome to watch. Our nerves were tested. Should you cash out and save your portfolio from the jaws of an inevitable bear market?

Though the initial losses were dramatic, it turned out to be the shortest downturn in US history. And the gains that followed were no less historic.

The investors who had the mettle to stay invested saw the S&P end the year with a positive 18.40%; the Dow, 9.72% and the Nasdaq at a stunning 44.92%. No doubt, Federal stimulus played a role in achieving the record-breaking gains. But the healthy recovery speaks to the strength of the US economy, and many investors believed in that strength.

Some investors, however, ran for the hills. They bought up gold (which hit a record high of $2,070 per oz), or they ultimately cashed out. Cash earned 0.83% in 2020— quite the opportunity cost considering the market gains that followed. But the cashers thought they were protecting their portfolio by putting it out of harm’s way. It seemed like sound logic.  

But, historically, big gains usually follow big dips. The people who opted to avoid a downturn ended up also avoiding the returns that came after.

Understandably, it is hard to maintain nerves of steel whenever stocks nosedive. Even veteran investors’ stomachs plummet when their portfolio valuation does. But the gritty investor knows it is part of the game. Just as that pesky Mr. Franklin reminds us, “there are no gains without pains.”

So, What Lessons Did We Learn in 2020?

First, let’s take a look at how markets performed around the world. We’ll start with the S&P 500— which returned 18.40% (including dividends) for the year. Drill down a little, and we see that most of that was growth overtaking value. The S&P 500 Pure Growth Index returned 29.66%, while the S&P 500 value index was up only 1.36%.

But that’s just US large-cap. The most common benchmark for small-cap US stocks, the Russell 2000, was even better. It returned 19.96%, outperforming large-caps and reminding investors that they need exposure to multiple asset classes. In another win for growth, the Russell 2000 Growth Index was up a whopping 34.63%.

What about non-US markets?

Well, the MSCI All Country ex-US benchmark, which tracks non-US global equities, was up 11.12%. Even the MSCI Emerging Markets Index returned 18.31%. Bonds also proved valuable as active investors exited stocks in search of the stability of fixed income.

The Bloomberg Barclays Global Bond Index returned 5.12% for the year. To be fair, there were some misses. While stocks related to remote work soared (such as Zoom), the S&P REIT Index fell 9.09%, fueled by the uncertainty of the future of traditional office spaces.

As a whole, these figures outline an upbeat picture, right? It is hard to argue otherwise— pick almost any asset class, and you had a high probability of positive returns. But why doesn’t it feel like 2020 was a pleasant year in the markets or otherwise?

That brings us to the first fundamental lesson of 2020: a single number, such as a yearly return figure, doesn’t tell the whole story. Baked into that number are swings of 25 percentage points in a single month. As humans, the emotions associated with those swings lingers in our minds, not the result of those swings— even if the results are desirable. Just like a roller coaster ride is very smooth at the beginning and the end, it’s the middle of the ride that sticks with us. The lesson here is to remember that the outcome of the market volatility we saw in 2020 was positive, even if the journey was uncomfortable.

The second lesson we can take from the last year is that, when it comes to investing, our feelings about a set of circumstances are not a reliable indicator of how we should act in response to those circumstances. There were a lot of smart, rational people that lost out on very healthy returns because the market had never faced a threat like the Coronavirus before. How would businesses bounce back after being shut down for months on end? There couldn’t possibly be any upside to be gained, right? These are valid questions and concerns, and it could be argued a betting person should bet the under. But humans are lousy at predicting the future in the best of times. And we certainly don’t get better at it when those predictions are rooted in fear and uncertainty. That’s why we respond to these questions and concerns ahead of time with a disciplined process rooted in data. It’s a better bet than leaving it to our future selves to navigate the emotions of investing.

In 2021, Stay the Course

Like every year, 2020 was unpredictable. But investing in a panic-stricken market is no different from investing in a calm, sedated market. Following through with meeting our long-term investment goals requires us to maintain the same methodical approach. And is as follows:

Buy and Hold.

“Long-term” means many things, depending on whom you ask. Active investors think five years is a bleak hole of eternity. Heck, some think 12 months is too long. But the patient investor thinks in terms of lifetimes. To them, the more cycles in the market, the better. They never get caught up in “to the moon” battle cries. They pay no mind to gurus. Instead, they see investing as a mode of building wealth, not winning the lottery. Because buy-and-hold portfolios earn better returns over time. And you don’t have to rely on luck. As Mr. Franklin says, “diligence is the mother of good luck,” anyhow.


It is the most boring way to invest. Mind numbingly unspectacular, you might say. But we say that index investing is far better than stock-guessing. And though indexing is a little more “hands-off,” you still get to strategize a little. You can tilt toward particular factors. Rebalance when appropriate. AssetBuilder, in fact, factor invests. But the main appeal of this yawn-inducing style of investing is that it will capture a greater return if you have the courage to hang on. At least that’s what Bogle and Buffet believe—but what do they know?


Diversification is not just risk management. It is simple rationale. The positive occurrences offset the negative for a net positive return. Since equity markets always trend upward, you can (usually) count on reliable, stable returns. Harry Markowitz called diversification the “only free lunch in finance.” And he is right. Diversifying costs nothing. And that makes the returns that follow all the sweeter.

Low Costs.

The theme of this letter is this: don’t self-tax. Cutting out unneeded expenses can go a long way to earning better returns than Wall Street hedge fund managers. Their returns are quietly siphoned by abhorrent fees, hidden charges, transaction costs, and so on. Those lost returns could have been compounding in the market instead. Lowering costs is how shrewd investors become solvent. It is how they become wealthy.

Rethinking Risk

Everybody’s tolerance for risk is different. As your advisor, we assess your capacity for risk in order to keep you on track to meet your goals while exposing you to the amount of volatility that you are comfortable with.

There are three types of risk that we measure.  First, risk necessity (how much your money needs to grow to reach goals).  We measure risk capacity (if you did not reach your goals, what are your other options?).  Finally, we measure risk tolerance (how you respond to different scenarios along your financial journey).

There are many other different types of risks, including market risk, longevity risk, or liquidity risk, to name a few.  One risk that we want to focus on is tax or policy risk.

Consider the lawsuit against XRP (cryptocurrency). The SEC sued Ripple for, “fail[ing] to register their ongoing offer and sale of billions of XRP to retail investors.” If the SEC wins, and is able to step in on a (self-proclaimed) cryptocurrency and apply rules and regulation, what might be next for someone like Bitcoin? Bitcoin users are then subject to policy risk. By “policy” we mean “governmental policy” that can threaten your returns.

Here is a more pertinent example. Let’s say Uncle Sam decides that withdraws from your IRA are no longer taxed as regular income—but are now subject to a 49% tax rate. That would put a damper on your retirement travel plans, wouldn’t it? This risk, via policy, can severely diminish your net cash.

To reiterate, policy risk is a danger posed by policy changes (usually levied by the government) that you might suddenly be subject to.  They often slip under our radar because the occurrences are usually subtle.  

But thankfully, this is something you can do. And it is something we do for our clients on a routine basis. By placing your investment in the proper tax locations, you can minimize taxes. To use our example, if your IRA became subject to a new higher tax rate, we would move it to different locations, which a much lower tax rate. The idea seems simple enough. But, over the years, we have watched unsuspecting investors who become a victim of sudden policy changes. AssetBuilder happily helps our clients navigate the bureaucratic biliteral bickering and the resulting policy potholes that lie in wait for unwary stockholders.

From All of Us: Thank You

2020 was quite a year. It would be impossible to recount every occurrence in a final paragraph. But from civil unrest, a beleaguered market, countless job losses and even worse life-loss—2020 certainly was a test of tenacity.

During one of the worst health crises in recent memory, people found a way to endure. And that inspires us.  

We would like to say we appreciate your aptitude and your determination to stay the course during times of doubt. It is easy to run away.  It is easy to falter. But the experienced investor knows that sticking it through tumultuous times will lead to long-term success. And the humble investor follows that checking our emotions is a sure way to wealth. As Mr. Ben Franklin said, “We may make these times better, if we better ourselves.”

And in that vein, we thank you for sticking with us. Your success is our success. And we look forward to seeing more of it in 2021.


The AssetBuilder Team


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This article contains the opinions of the author but not necessarily the opinions of AssetBuilder Inc. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

AssetBuilder Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and expenses carefully before investing.