As S&P 500 breaks 4,000 barrier, what can we learn from the Covid-19 "bear market?"

The stock market is closed for Good Friday today, with the S&P 500 sitting above 4,000 — the first time the index has ever ended a day above that threshold.

(A blessed Triduum and Happy Easter to all who celebrate.)

It’s a mark that seemed almost unimaginable one year ago, and perhaps an apt metaphor for the weekend. Almost exactly 12 months ago, the index fell to just above 2,000 — setting a record for the fastest 30% drop ever. The Covid-19 collapse took only 22 trading days, hitting its pandemic bottom on March 20, 2020. A lot has happened since then. Including — if you stretch the math just a bit — an almost 100% gain in the S&P 500.

Forbes Advisor recently asked me to take stock of Wall Street’s Covid-19 roller-coaster. It has been a wild ride. And to be clear, how much money you lost or made in the stock market is hardly the most important thing to think about this weekend, or during the past year. But as one of my favorite sources, financial planner Desmond Henry of Topeka, Kansas, said to me: "The year 2020 was the ultimate playbook of investment lessons.” So it’s a learning moment. People who panicked in March sure regret it now. People who trusted in American innovation — particularly among technology companies — profited handsomely. Mainly, those who stayed the course and held on to long-term thinking did just fine.

I’d like to invite you to read the whole piece at Forbes — Covid-19 Crisis: Investing Lessons From The Pandemic — and this is a good time to mention that I’m now a regular contributor there. You can find my catalog at this link.

Among the points I make in the piece: panic and pessimism aren’t profitable; the best time to invest is RIGHT NOW, almost always; quick, dramatic drops are easier to stomach than slow declines; and emergency funds have never been more important. (“Invest like an optimist but save like a pessimist,” Henry says).

But here’s an extra point I’d like to make: American investors really did show sophistication during the Covid-19 bear. Henry told me he was steeled to have a flood of panicked calls from clients telling him to SELL EVERYTHING. He didn’t. And he wasn’t alone. A Vanguard study backed that up: Very few people cashed in all their chips during Covid-19.

“Less than 1% of households abandoned equities completely during the downturn,” in the first half of 2020, the report found (PDF). “The net result of the portfolio and market changes was a modest reduction in the average household equity allocation, from 63% to 62%.”

Why? I think Americans know a heck of a lot more than they used to about investing, and that’s a good thing. It’s also up for debate. There’s plenty of research showing that financial literacy doesn’t really work. I understand why: Knowing how to balance a checkbook doesn’t help if you are unemployed and CAN’T balance your checkbook. Still, this experience suggests to me that all the Robin Hoods and Grows and CNBC watchers out there seem to be getting the message. Investing is a long-term proposition. The flood of money pouring into index funds tells me this, too. (And really, most of you should only invest in index funds).

Henry offered up another explanation for investor calm. Last March's collapse was easy to understand. During the Great Recession, back in 2008-2009, he had to try to explain mortgage-backed securities to frustrated savers.  In this case, the reason for plummeting values was clear, and everyone was in the same boat.

"Misery loves company," he said.

Also, it can’t be ignored, 0% Fed interest rates make stocks almost irresistible, and sure helped make these people look smart. Still, the slow, steady argument won the day. And the year.

Whatever the reason, there is reason for hope. And I’m very thankful for that, especially this weekend.