Painful as it was, patience paid off for investors in 2020

NEW YORK (AP) — Good things came to fund investors who waited in 2020. But, what a terrifying wait it was.

Mutual funds and exchange traded funds of all stripes delivered strong annual returns, even better than usual. Consider the largest fund by assets, a core holding of many 401(k) accounts. Vanguard’s Total Stock Market Index fund returned 19.5%, as of Dec. 22, more than double its average annual performance since 2000.

But first investors had to withstand a 34% plunge from February into March. Only by resisting the urge to sell and sidestep the pandemic-caused panic would they have gotten that full return.

Many investors unfortunately did not have the resolve or ability to hold on through that. Job losses, cash crunches and plain fear had many investors pulling out of stocks.

For most of this year, investors pulled more money out of U.S. stock mutual funds and ETFs than they put in. It's a continuation of a yearslong trend as investors have steadily moved money out of stock funds and into bond funds.

Bond funds, for their part, largely fulfilled their traditional roles as steadying forces for portfolios during stressful markets. They held up much better than stock funds early this year, and they also typically produced hearty returns for 2020. That's despite warnings at the start of the year that bond investors would likely have to accept weaker returns given how low yields were.

The average intermediate-term core bond fund returned 7.3% in 2020 through Dec. 22, according to Morningstar. That's nearly double its average annual return over the last decade.

But even within these stereotypically steady funds, investors had to endure several days of unbridled panic. The largest bond fund by assets had a two-day stretch where it plunged 1.7% and then another 1.6%....