Big data has rightfully received a great deal of attention in recent years. As analytic capabilities increase, more data can be examined from more angles in less time than ever before. We are already seeing some interesting information about investor behavior during 2020.

The typical response of the financial planning community during a bear market is that clients should be better off staying the course or at least avoiding panic rather than trying to trade around market moves. Most financial planning professionals believe clients should be better off listening to a good advisor than pundits and politicians on cable news. Intuitively that makes sense, but it is always nice to see some data that supports those contentions.

As yet, I haven’t seen a study yet that explores how clients of bona fide professional financial planners have done. However, I want to share some interesting data from Vanguard on how those flying solo fared in 2020. The data reinforces the importance of not panicking.

The Coronacrash was unprecedented in its speed. From its peak on February 19, the S&P 500 index took barely a month to decline 34% to its low point on Monday, March 23. The beginning of its recovery also came fast and furious. The index rose nearly 20% over the rest of that week and had risen 36% from its March low by May 31 at which point it was still 10% off its Feb 19 peak cumulatively. If panicking had a price it would show quickly, and it did.

In “Cash panickers: Coronavirus market volatility,” Vanguard found nearly 14,000 self-directed participants in defined contribution plans and about 18,000 self-directed retail investors that went fully to and stayed in cash between Feb 19 and May 31. These “cash panickers” represent less than 0.5% of the total number of self-directed retail and plan participants. At the median, they were in their mid 50s, had been with Vanguard for 12 years and had equity allocations near the low 70% level on February 19.

Vanguard estimated the “actual total returns these 32,000 people earned from February 19 through May 31.” The results vary greatly because these account holders went to cash at different times between Feb 19 and May 31.

Vanguard also computed a “personal pre-panic benchmark that used the same return calculation method but applied it to each individual’s portfolio composition as of February 18. This quantifies what the panickers would have earned had they done nothing and retained their holdings as of the close on February 18.

When Vanguard compared actual returns earned by panickers to what they would have earned by sticking with their holdings, it is clear the advice to “stay the course” was wise.

The typical knock on getting out of the market is that to benefit from the sale, one must get back in at a lower price point. These cash panickers did not do that. As the market recovered, more and more of these people saw price points above their exit level so fewer benefitted from getting out.

By the end of March, 58% of retail account holders that sold out were in better shape than if they had stuck with their February 18 holdings. That “success” rate dropped to 32% by the end of April and just 14% by the end of May. The percentages for the defined contribution subjects were similar at 56%, 31% and 16% respectively.

Whether one was better off by bailing out is one issue. By how much better (or worse off) one was is another. By the end of March, the chart showing the distribution of results looks like a skinny version of a bell curve but with a noticeable spike to the far right representing a fair number of sellers that were better off by 10% or more.

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