It has now been over one year since the economic shutdowns and human lockdowns began as a result of the covid pandemic. The pandemic has altered our lives in ways many could not have anticipated.

Of course, the good news is the miraculous development of several effective vaccines in a very short time period. Vaccines are paving the way for herd immunity which some experts believe we could reach by late summer in the U.S. This has positive implications for the economy which appears to be on verge of a significant surge in growth over the next couple of years.

In addition to the vaccines, the recently signed federal stimulus bill is also expected to exert a very positive force for growth for the next several years.

The good news pertaining to the vaccine and fiscal stimulus has had a very positive impact on the stock market. After witnessing the fastest bear market on record in March of 2020, the stock market measured by the S&P500 index gained 56% in the year ending March 31, 2021, probably the fastest one-year bear market recovery on record. But what have we learned over the past year as investors?

If we look back one year ago, there were many Wall Street “experts” who became very cautious in the Spring of 2020 due to the uncertain outlook resulting from covid. While in hindsight, the cautious opinions may have made sense, they proved wrong and many investors who remained on the sidelines missed a tremendous opportunity for growth.

The lesson here? Trying to time the market is a risky proposition and virtually impossible to do consistently. As financial planners, we don’t recommend it.

Other lessons we’ve learned? For one, do not underestimate the power of fiscal and monetary stimulus in driving positive investor sentiment.

So one year later, what are some of the implications of these developments for us as both investors and financial planners?

First, diversification in one’s investment portfolio continues to be of paramount importance in reducing risk and increasing probabilities of one achieving the goals of their financial plan. Diversification helps to reduce portfolio volatility when the stock market declines.

Second, the nature of this economic recovery is resulting in a rotation away from very high valuation (mostly new-age tech) stocks to more cyclical and “value” stocks. The reason for this is rising interest rates which reduce the valuation investors are willing to pay for companies that have little or no free cash flow. As a result, investors are moving more funds into areas like industrials, financials, and quality dividend paying stocks and we expect this trend could continue for some time.

Finally, there is concern that the unprecedented level of fiscal stimulus and monetary accommodation could result in higher inflation. As investors, we believe it makes sense to hedge for this possibility by owning quality industrial, financial, and metals stocks that have a history of consistent and growing dividends.

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Robert Toomey, CFA/CFP, is Vice President of Research for S. R. Schill & Associates on Mercer Island.