2020 was a turbulent year, and that turbulence included the stock market. Investors saw rapid swings in their portfolios -- often in a matter of weeks.
Many seasoned investors had been through this kind of volatility before. But for those who hadn't been investing very long, it was their first taste of such significant ups and downs.
We wanted to know how different groups of investors handled 2020's market volatility. To find out, we surveyed respondents, including those who had been investing for decades, rookies who had a year or less of experience in the market, and everyone in-between.
Read on to learn how investors perceived and approached one of the most volatile markets of all time.
Key findings
- The stock market saw record levels of volatility in 2020, but only 57% of investors recognized that it was more volatile than usual.
- Investors with more than 5 years of investing experience were more likely to report that the market was more volatile than usual.
- 85% of investors were at least somewhat anxious about the stock market in 2020.
- The most common action investors took in response to market volatility was buying stocks -- 45% of investors bought shares because of volatility in 2020.
- Investors with 10 years of experience or more were the most likely not to do anything differently in response to market volatility -- 30% of them stayed the course through 2020.
- Women were more likely than men to not change their investing actions because of market volatility.
- Preventing financial losses was the most common reason investors sold their stocks, but many people also needed cash, including over 55% of Generation Z investors who sold stocks.
- Investors with 10 years of experience or more were more likely to sell stocks to reinvest in better opportunities or capitalize on a rise in value in 2020.
- 45% of investors thought they made money with their response to market volatility in 2020, but over 20% of investors with one year of experience or less aren't sure how they fared.
How volatile was the stock market in 2020?
Market volatility reached an all-time high in 2020 per the CBOE Volatility Index (VIX).
The VIX is a common gauge of stock market volatility. A higher VIX corresponds to a more volatile, unsettled market. Here are the VIX ranges and their levels of volatility, according to the S&P Dow Jones Indices:
- 15 and below: Low, indicates optimism in the market.
- 15 to 20: Moderate, indicates a normal market environment.
- 20 to 25: Medium to high, indicates growing concern.
- 25 to 30: High, indicates turbulence in the market.
- 30 and above: Extremely high, indicates extreme turbulence in the market.
The VIX skyrocketed as the COVID-19 pandemic grew more serious. It closed at an all-time high of 82.69 on March 16. Although it dropped from there, it was above 20 for the rest of the year with several spikes above 30.
The only recent year on record with similar volatility was 2008, during the height of the Great Recession.
How did investors perceive stock market volatility?
Overall, 56.35% of investors rated the stock market as more volatile in 2020 than most other years. That still leaves a sizable chunk who didn't recognize the volatility.
How volatile would you say the stock market was in 2020?
| Much less volatile than most years | Somewhat less volatile than most years | About as volatile as most years | Somewhat more volatile than most years | Much more volatile than most years |
|---|---|---|---|---|
| 9.45% | 13.95% | 19.25% | 31.30% | 26.05% |
Did more experienced investors do a better job of noting volatility?
They did, but only by a few percentage points. You'd expect investors with over 10 years of experience to do much better at recognizing volatility than those with a year or less, but surprisingly, that wasn't the case.
| Years of investing experience | Percentage who rated 2020 stock market as somewhat or much more volatile than usual |
|---|---|
| 1 or less | 56.83% |
| 2–5 | 55.15% |
| 6–10 | 59.66% |
| 10+ | 59.51% |
The results are different if we go by age instead of investing experience. Middle-aged adults did the best at recognizing volatility, followed by Millennials under the age of 35. Interestingly enough, the oldest adults were the least likely to think the market was notably volatile.
| Age range | Percentage who rated 2020 stock market as somewhat or much more volatile than usual |
|---|---|
| 18–24 | 53.31% |
| 25–34 | 58.28% |
| 35–44 | 61.59% |
| 45–54 | 62.12% |
| 55+ | 44.36% |
When looking at the results by other demographics, male investors (60.54%) were more likely to rate the stock market as somewhat or much more volatile than female investors (53.66%).
White investors were more likely than investors of color to rate the market as somewhat or very volatile, as well.
How volatility led to anxiety among investors
Anxiety was high for investors last year. 84.60% rated themselves as at least a little anxious due to market volatility, and over half (52.95%) were somewhat or very anxious.
How anxious did 2020's market volatility make you?
| Not anxious at all | A little anxious | Somewhat anxious | Very anxious |
|---|---|---|---|
| 15.40% | 31.65% | 29.60% | 23.35% |
Less experienced investors reported slightly less anxiety. This can, however, be at least partially explained by the fact that this group was less likely to recognize the market's volatility.
| Years of investing experience | Percentage who were somewhat or very anxious |
|---|---|
| 1 or less | 50.66% |
| 2–5 | 52.27% |
| 6–10 | 57.49% |
| 10+ | 52.95% |
The youngest investors were more likely to be anxious about volatility than middle-aged investors, even though they were less likely to recognize it.
| Age | Percentage who were somewhat or very anxious |
|---|---|
| 18–24 | 55.30% |
| 25–34 | 51.40% |
| 35–44 | 54.48% |
| 45–54 | 53.04% |
| 55+ | 48.87% |
Male investors (55.88%) were more likely to rate themselves as somewhat or very anxious than female investors (49.57%).
There was one interesting anomaly when looking at anxiety levels by race/ethnicity. A comparatively high percentage of Hispanic/Latino investors felt anxious compared to the percentage who recognized market volatility, with almost 60% saying they were somewhat or very anxious.
What actions did investors take because of market volatility?
Nearly half of all investors bought stocks, and about a third chose to sell or keep money out of the market due to volatility. Just over one-in-five didn't change their normal investing habits.
Did you take any of the following actions because of market volatility in 2020?
| Bought stocks | Sold stocks | Kept money out of the market | Didn't do anything differently |
|---|---|---|---|
| 44.95% | 32.30% | 32.25% | 21.40% |
It's important to clarify here that none of these actions are necessarily right or wrong. Every investor's situation is different, and there are valid reasons for all the actions above.
There were some clear differences in the actions taken by new and experienced investors. Those with a year or less of experience typically chose to buy stocks ahead of any other course of action. They were also the least likely to sell stocks or keep their money out of the market.
Investors with 10 years or more of experience were the most likely to stay the course and not do anything differently. They did have one thing in common with the newest investors, though -- they generally didn't choose to keep their money out of the market.
| Action | 1 year or less investing experience | 2–5 years investing experience | 6–10 years investing experience | 10+ years investing experience |
|---|---|---|---|---|
| Bought stocks | 45.37% | 45.53% | 46.38% | 41.98% |
| Sold stocks | 24.23% | 35.21% | 37.20% | 31.11% |
| Kept money out of the market | 25.33% | 35.90% | 38.89% | 26.67% |
| Didn't do anything differently | 24.23% | 16.78% | 17.63% | 30.37% |
Research on women in investing has consistently shown that women are less impulsive investors than men. That held true in 2020, as 28.13% of female investors said they didn't do anything differently because of market volatility, compared to just 15.58% of male investors.
Among races/ethnicities, the most common course of action was buying stocks. Outside of that, there were several notable differences in how these groups approached market volatility:
- White investors were the least likely to sell stocks and the most likely to not do anything differently.
- Asian investors were the most likely to sell stocks.
- Black investors were the least likely not to do anything differently. Most took some sort of action, be it buying, selling, or keeping money out of the market.
Why did investors sell stocks in 2020?
There were all kinds of reasons why investors sold stocks in 2020. Here are the reasons given by the respondents who said they sold stocks due to market volatility (respondents were allowed to choose multiple options):
- Prevent financial losses: 42.11%
- Needed cash: 39.94%
- Reinvest in better opportunities: 37.15%
- Capitalize on a rise in value: 35.14%
- Keep money out of a volatile market: 31.11%
- Rebalance my portfolio: 29.41%
- The stock(s) looked overvalued: 28.95%
- An advisor, broker, or service told me to sell: 25.08%
- Other: 4.80%
We saw the starkest difference between new and experienced investors in this area.
Investors with 10 years or more of experience were far less likely to sell because they needed cash. The portion of investors who sold either to reinvest in better opportunities or to capitalize on a rise in value also went up with higher levels of experience.
| Reason for selling | 1 year or less investing experience | 2–5 years investing experience | 6–10 years investing experience | 10+ years investing experience |
|---|---|---|---|---|
| Needed cash | 36.36% | 47.66% | 38.31% | 29.37% |
| Reinvest in better opportunities | 33.64% | 34.38% | 40.91% | 41.27% |
| Capitalize on a rise in value | 24.55% | 30.86% | 38.31% | 49.21% |
The youngest investors were overwhelmingly more likely to sell stocks because they needed cash. Here are the percentages from each age range who sold because they were short on funds.
Sold stocks in 2020 because they needed cash
- 18–24: 57.14%
- 25–34: 36.02%
- 35–44: 41.74%
- 45–54: 30.99%
- 55+: 25.37%
Why did investors buy stocks in 2020?
Investors also had several different reasons for buying stocks in 2020. Here are the reasons given by respondents who said they bought stocks due to market volatility (respondents were allowed to choose multiple options):
- Opportunity to ride the momentum of fast-rising stocks: 34.26%
- Industries that were unaffected by COVID-19: 21.36%
- Recommendation from an advisor, broker, or service: 21.13%
- Historical stability: 20.02%
- Dividends: 17.46%
- Other: 6.34%
Across all demographics, the most popular reason to buy stocks was to capitalize on a fast-rising security.
It was, however, less common with the most experienced investors. Among those with 10 years or more of experience, a comparatively low 27.65% bought stocks for this reason.
Instead, many experienced investors considered the historical stability of particular stocks as well as the dividends they paid out.
How did investors rate their performance?
Finally, we asked investors to assess how they did last year. Nearly half thought they came out ahead.
How do you feel about your response to market volatility in 2020?
| I think I made money | I think I broke even | I think I lost money | I'm not sure |
|---|---|---|---|
| 45.65% | 22.15% | 19.45% | 12.75% |
Experience made a big difference here. More experienced investors were more likely to believe they made money. Those with 10 years or more of experience were also the least likely to believe they broke even or lost money.
An issue that stood out among the least experienced investors was not knowing how their portfolio performed. This group was nearly twice as likely as any other to respond that they didn't know how they did.
| Perception of 2020 investing performance | 1 year or less investing experience | 2–5 years investing experience | 6–10 years investing experience | 10+ years investing experience |
|---|---|---|---|---|
| I think I made money because of how I responded to market volatility in 2020 | 40.53% | 45.39% | 45.89% | 51.60% |
| I think I broke even because of how I responded to market volatility in 2020 | 20.48% | 25.45% | 20.77% | 19.51% |
| I think I lost money because of how I responded to market volatility in 2020 | 17.18% | 20.91% | 21.74% | 17.04% |
| I'm not sure how I did | 21.81% | 8.25% | 11.59% | 11.85% |
A much higher portion of female investors (17.24%) didn't know how they did compared to male investors (8.86%). This could be in part because male investors tend to review their accounts more often.
A year unlike any other led to diverse investing strategies
We saw quite a few different approaches to the market volatility in 2020. Buying stocks was the most popular, although sizable portions of investors chose to sell or hold on to their cash.
The most experienced investors seemed to be less impulsive and more stable with their investing strategies. They were the most likely to follow their usual approach. When they sold stocks, it was most often to reinvest or capitalize on new opportunities, not because they needed cash.
This is the kind of approach we encourage here at The Motley Fool. Invest in great companies and hold your shares for a long time, regardless of a volatile year here or there. (Though we certainly understand that many people needed to sell last year -- we saw high numbers of people experiencing income loss, and that creates an urgent need for cash.)
Fortunately, almost seven out of 10 investors believed they either made money or broke even. A strong rebound by the stock market played a large role in that, but it's still good news that the majority of investors didn't lose money.
Methodology
The Motley Fool distributed this survey to 2,000 American adult stock investors via Pollfish on February 11, 2021.
Respondents were 46% female and 534% male. Age breakdown was approximately 15% 18–24, 23% 25–34, 35% 35–44, 13% 45-54, and 13% 55+.
Sources
- Federal Reserve Bank of St. Louis (2021). "CBOE Volatility Index: VIX (VIXCLS)."
- S&P Dow Jones Indices (2021). "VIX® The CBOE Volatility Index®."
