There are a ton of misconceptions around investing. My goal from this post is to help clear many of these up.
Let's get into it.
“Just S&P and Chill man”
This is a common investment philosophy I see.
But is it a good one?
This chart shows US vs International performance over the last 55 years
What do you notice?
International and US take turns out performing each other. And right now we are in one of the longest periods of time of outperformance for US.
This is why so many asset managers are putting more and more funds outside of the US. If you just owned US large cap from 2000-2010 you would have had no returns.
If you had a mixed exposure, you would have had positive returns.
This is why I advocate for a globally diversified portfolio. You do not want lost decades.
This chart below shows top to bottom what asset classes did best to worst in each year since 2003
What do you notice?
Every year is drastically different.
Oftentimes the asset class that did the best the year before, did close to the worst the next year.
What does this mean for you?
It’s a case for not just owning US large cap like many do now.
Its a case for not just owning any single asset class. You want exposure to all so when it does the best you get those returns.
Diversify across:
And then rebalance as time goes on.
Most see the market go down by 5-10%+ and panic. They sell out and wait for the “right time” to buy back in.
Here’s the thing...
Drawdowns are extremely normal.
Most years see a 15% draw down. It's all part of it.
You need to understand that volatility is normal, expected, and will continue to happen. Without it, returns would not be anywhere close to where they are.
So many people fear recessions
But should you?
This chart walks through how often bear markets come, how long they last, and average draw down.
As you can see, the average bull market lasts 4.4 years with a cumulative return of 152%.
The average bear market last 11.3 months and sees a loss of 32.1%.
So what should you take away from this?
Bear markets happen and they happen often. You will see about 2 every decade.
Yet average returns have still been really strong. Be prepared for them to come but know bull markets historically are way stronger and last way longer.
Here’s the truth, if you watch the news, you will always find a reason why it is a bad time to invest in the market.
So many make selling decisions based on current events.
But here's the thing, you can always find an event that is different than the last time and why it is a reason to sell and not buy.
But look back on this chart since 1926.
Every couple years there has been some crazy global event that has made you think you need to move out.
Yet look at how the market did through it all...
Hopefully these 5 charts helped you understand investing better.
The more you know the better the investor you can be.
Financial Advisor