Looking back at 2019, it turned out to be a surprisingly good year for ASX shares and global stock markets generally. The US S&P 500 index returned almost 30% in gains over the past year, whilst the Dow Jones Industrial Average booked a respectable 22% gain.
The ASX hasn't done too badly either. The ALL ORDINARIES (INDEXASX: XAO) managed to eke out a 21% gain, whilst the popular S&P/ASX 200 (INDEXASX: XJO) banked a 21.45% rise.
This is good news for almost all investors. A rising tide lifts all boats, as they say. So even if your portfolio didn't quite match the returns of the index benchmarks, it's still likely that you at least saw some healthy gains last year.
Whilst this is of course a good thing, there's also a cloud to this silver lining. If you only started investing in 2019 or even in 2018, chances are all you have seen from the stock market since then have been consistent gains. It's almost like playing tennis with the net down.
Whilst this is naturally better than a beginner investing and immediately losing capital in a confidence-crushing market crash, it also may lead to a false sense of security and skill. Investing is tricky and takes years of practice to master. Getting the basics right over many years and across all market cycles is really the key to building long-term wealth, rather than having one good year in a bull market.
So, how should beginners invest in 2020?
I think having a carefully sculpted set of rules about what kind of companies you want to invest in and at what prices is the best approach going into 2020 as a beginner. If you're already in the markets, think carefully about when you'd buy and especially sell stocks this year – this can stop you from (in the words of Warren Buffett) doing "dumb things because your stock goes down" in a correction. For example, if you thought Commonwealth Bank of Australia (ASX: CBA) shares were a good deal at $80, why on earth would you give them to someone else for $65 a share?
This kind of mindset would serve any investor well in 2020 (in my opinion) – beginners and masters alike. So find good companies you can understand, figure out what price you'd be willing to pay for their earnings and go from there! And if there does happen to be a correction in 2020, open your wallet!
