Message from Jon
The numbers paint a different picture!I am always in pursuit of fact over perception. Especially in the days of noise and corruption, fake news, and "reality TV" (which is anything but reality), it is becoming more and more difficult to do just that...find the facts—so I look to the numbers to try the best job of doing that.
The data below comes from the website of a wealth management firm out of California that uses DFA funds to invest on behalf of clients. I am not endorsing them in any way. They have done an excellent job of making historical data available to the public.
For the last 91 years:1
- S&P 500 index has performed at 9.49% with a Standard Deviation of 18.01
- World Index has performed at 10.98% with a Standard Deviation of 22.02
For the last 5 years:1
- A 40/60 portfolio (40% stocks/60% bonds) would have earned 8% (1.00 would be 1.08)
- A 60/40 portfolio (60% stocks & 40% bonds) would have earned 11% ($1.00 would be worth $1.11)
- A 90/10 portfolio (90% stocks/10% bonds) would have earned 15% (1.00 would be worth 1.15)
To help put the above into perspective:
- You would be increasing your level of risk from the 40/60 to 90/10 by 131.929% for a measly 7% increase in return!
- You would be increasing your level of risk from the 60/40 to 90/10 by 52.256% for a measly 4% increase in return!
Now what happens when you start your timeline from '09 to '18?1
- A 40/60 portfolio would have earned 63% ($1.00 worth $1.63)
- A 60/40 portfolio would have earned 97% ($1.00 worth $1.97)
- A 90/10 portfolio would have earned 157% ($1.00 worth $2.57)
To help put the above into perspective (part 2):
- You would increase your risk level from 40/60 to 90/10 by 126.355% for 57.669% more in return!
- You would increase your risk level from 60/40 to 90/10 by 50.904% for 30.457% more in return!
For 2018, the difference between the S&P 500 (100% stocks) and that of a 40/60 (conservative) portfolio is $0.01 ($0.95 vs $0.94). As a matter of fact, the more risk levels you climb, the bigger the gap! Using a 100% equities growth fund would have created a $0.85 compared to a $0.94 for a 40/60 model, proving that in the last couple of years, a more modest approach to the markets have nearly matched the aggressive portfolio when the risk/reward levels have been factored in.1
In my opinion, this supports two points of consideration...
- It is better to increase your risk levels after a major correction/crash and then shift them over time to a more conservative level of risk.
- The idea of the younger the investor the higher the level of risk as a default approach to investing is irrelevant since it's not the age of the investor that matters, it is the age of the Bull Market cycle that does.
Till we speak again, enjoy the evenings, since mid-day has been scorching hot!
Special Update: Quarterly Report
WEEKLY UPDATE - JULY 8, 2019
The Week on Wall Street
U.S. stock benchmarks opened a new quarter positively. The S&P 500 gained 1.65% in the opening week of July; the Dow Jones Industrial Average, 1.21%; the Nasdaq Composite, 1.94%. Overseas, stocks in developed markets, tracked by MSCI's EAFE index, rose 1.43%.
Securities offered through Regulus Advisors, LLC. Member FINRA/SIPC. Investment advisory services offered through Regal Investment Advisors, LLC, an SEC Registered Investment Advisor. Registration with the SEC does not imply any level of skill or training. Regulus Advisors and Regal Investment Advisors are affiliated entities. Summit Retirement Advisors, LLC and Summit Financial Group of Indiana are affiliated entities. Summit Retirement Advisors, LLC and Summit Financial Group of Indiana are independent of Regulus Advisors and Regal Investment Advisors.