Behavioral Finance

The Resilience of the 60/40 Portfolio

September 5, 2024 by Hans Blake, CFA, CPA

Reading Time: 4 minutes

A Time-Tested Strategy Under Scrutiny

The 60/40 portfolio, composed of 60% U.S. stocks (often represented by the S&P 500) and 40% U.S. fixed income (commonly represented by the Barclays U.S. Aggregate Bond Index or 5-year/10-year Treasuries), has long been a cornerstone of traditional investment strategy. This allocation has provided a balanced approach to growth and stability, blending the potential returns of equities with the steady income and lower volatility of bonds. However, recent market dynamics, especially the turbulent year of 2022, have put this strategy under pressure and raised questions about its continued viability.

Despite these challenges, a deeper analysis of historical data reveals that the 60/40 portfolio remains a robust option for long-term investors or intelligent investors. As we examine the historical performance of this allocation, it becomes clear that the win rate—defined as the probability of achieving positive returns—improves significantly over time.

First a look at just equities- The S&P 500

As you can see from above, if you held the S&P 500 for at least 12 years, you would have a 100% win rate. But most portfolios don’t consist only of the S&P 500, so let’s dig a bit deeper and add another asset class—fixed income.

The Historical Performance of the 60/40 Portfolio

One of the key strengths of the 60/40 portfolio lies in its ability to deliver consistent returns over various time horizons. By analyzing data dating back to 1926, we can observe the resilience of this allocation across different market environments. In the examples below, the 40% allocation of fixed income is using 5 year US Treasuries as a proxy.

Monthly Returns: On a month-to-month basis, the 60/40 portfolio exhibits similar win rates to the stock market (S&P 500), albeit with slightly lower volatility. This is due to the stabilizing influence of bonds, which tend to perform well during periods of economic uncertainty.

1-Year Returns: Over a one-year period, the win rates for the 60/40 portfolio slightly outperform those of a pure equity portfolio. The inclusion of fixed income provides a cushion against market downturns, resulting in more consistent positive returns.

3-Year and 5-Year Returns: As the investment horizon extends to three and five years, the win rates for the 60/40 portfolio continue to improve. The diversification benefits of holding both stocks and bonds become more apparent, reducing the likelihood of experiencing negative returns.

10-Year Returns: Perhaps most impressively, the 60/40 portfolio has never delivered a negative 10-year return in its nearly 100-year history. This track record underscores the power of diversification and long-term investing. Even during periods of significant market stress, the combination of equities and fixed income has provided a reliable path to wealth preservation and growth.

Inflation-Adjusted Returns: A Closer Look at Real Returns

While the nominal (not factoring inflation) returns of the 60/40 portfolio are impressive, it’s essential to consider the impact of inflation on purchasing power. When we adjust the historical data for inflation, the win rates do decrease slightly, but the overall trend remains positive. Even in inflation-adjusted terms, the 60/40 portfolio has delivered strong long-term returns, reinforcing its status as a dependable strategy for preserving wealth.

The Importance of Time Horizon: The data is clear—the longer your investment horizon, the higher your chances of success with a 60/40 portfolio. While short-term fluctuations are inevitable, patient investors who stay the course are rewarded with positive outcomes more often than not.

Preparing for Market Volatility

We’ve spent considerable time preparing our clients and their portfolios for periods of market volatility. By stress-testing portfolios, we provide clients with a glimpse of what their investments might look like during turbulent times. The key question now is whether to react in fear or to stick to the sound decisions that have been made.

Over the long term, equities serve as a hedge against inflation. A company’s earnings and revenues typically rise with inflation, contributing to higher stock prices. Since 1970, the MSCI USA has averaged an annualized return of 7.6%, outpacing the annualized inflation rate of around 4%. This is a testament to the power of long-term investing.

The 60/40 Portfolio as a Starting Point in Portfolio Construction

While the 60/40 portfolio has a long history of success, it is just a starting point in portfolio construction. The financial markets have evolved, and so have the strategies for building robust and diversified portfolios. There are strong arguments for enhancing the 60/40 allocation by adding other elements, such as:

Global Diversification: Expanding the equity and bond allocation to include international and emerging markets can capture growth opportunities across the globe and provide additional risk diversification.
Alternatives: Incorporating non-traditional assets such as managed futures, convertible bonds, and arbitrage strategies can add further diversification and reduce correlation with traditional stock and bond markets.

Private Equity and Infrastructure Funds: These investments offer access to opportunities that are often unavailable in public markets, potentially enhancing returns and providing an additional layer of diversification.

The Foundation of a Sound Investment Strategy

Before diving into portfolio construction, it’s crucial to understand your goals. Whether your objective is wealth accumulation, capital preservation, income generation, or a combination of these, your goals should guide your investment strategy. Once your goals are clear, the next step is to translate them into a well-thought-out plan. This plan then serves as the blueprint for building a diversified portfolio tailored to your unique needs.

However, even the most carefully crafted portfolio can be derailed by emotional decision-making. Headlines, market noise, and short-term volatility often tempt investors to make impulsive changes that can jeopardize long-term success. This is where Intelligent Investing comes in. We guide our clients in navigating the path to financial independence by consistently doing the right thing and avoiding the ledges of fear and greed.

Helping You Stay the Course

At Intelligent Investing, we believe that staying disciplined is key to achieving long-term success. Our approach is to help clients remain focused on their goals, avoid knee-jerk reactions to market events, and make informed decisions based on data and sound principles. By partnering with us, you gain access to expert guidance, a customized investment strategy, and the peace of mind that comes from knowing your portfolio is aligned with your goals.

We’d love to offer you a complimentary coffee or call to learn more about your financial situation and help you develop a written plan for you and your family. Visit investedwithyou.com and click on the “Get Started” button to begin your journey to becoming the next intelligent investor.

Disclosure: The information provided in this article is for educational and informational purposes only. The returns mentioned, such as the historical performance of the MSCI USA and other market indices, are based on past data and do not guarantee or predict future performance. Investing involves risks, including the potential loss of principal. Diversification does not guarantee a profit or protect against loss in a declining market. All investments should be made based on your own goals, risk tolerance, and time horizon. Please consult with a financial advisor, such as Intelligent Investing to determine the strategy that best suits your individual situation.

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Why Intelligent Investors Don’t Panic

August 16, 2024 by Hans Blake, CFA, CPA

Reading Time: 4 minutes

Staying the Course During Market Corrections

C.S. Lewis once wrote, “When the whole world is running towards a cliff, he who is running in the opposite direction appears to have lost his mind.” This sentiment is particularly relevant in today’s financial climate, where headlines are dominated by fears of a market correction following a weak jobs report and a subsequent Nasdaq downturn. As recession concerns grow, it’s crucial to recognize that what seems like chaos in the short term is often just part of the market’s natural cycle.

Our Philosophy: Driven by Goals, Not Headlines

This recent market correction aligns with our earlier analysis, where we observed a speculative rush into the tech sector, fueled by fear of missing out on the artificial intelligence boom. Now, the market is reverting to the mean—a typical and necessary process in maintaining long-term stability.

At Intelligent Investing, we emphasize an investment philosophy that is designed to withstand market cycles with patience and discipline. Our clients’ financial goals, rather than fleeting news headlines, guide our decision-making process. We regularly review our clients’ specific risk profiles and make necessary adjustments to their portfolios, ensuring they remain aligned with their long-term objectives.

While we stay informed about market developments, we avoid overreacting to the alarmist headlines often seen on Wall Street. History has repeatedly shown that markets recover from downturns—whether it was the selloff in 2018, the COVID-19 crash, or the correction in 2022. Each time, the market rebounded to new highs.

Fear and Greed: A Dangerous Duo

Currently, the CNN Fear and Greed Index hovers around 19, indicating extreme fear in the market. We’ve seen it dip even lower in the past when short-term investors, driven by emotion, made impulsive decisions. As Warren Buffett wisely advised, “Be fearful when others are greedy and greedy when others are fearful.” This principle is central to our investment strategy.

It’s essential to understand that our clients’ portfolios are not limited to a single asset class like the S&P 500. Instead, they are diversified across multiple asset classes, including international investments, which helps spread risk. These asset classes are not 100% correlated, meaning when one zigs, another may zag. This diversification can mitigate risk, though it doesn’t eliminate it completely.

Utilizing Our Risk Software

Our proprietary risk software is a critical tool that helps us calculate a 95% historical range for portfolio performance. For example, a portfolio with a risk number of 45 might typically experience fluctuations between -8% and +12% over six months. These movements are within the normal range for such a portfolio.

However, markets can sometimes swing into 5% probability events, where downturns exceed the 95% historical range. While we can’t predict these periods with certainty, we’ve seen similar scenarios during the 2008/2009 financial crisis and the initial COVID-19 shock in 2020.

At Intelligent Investing, we regularly review our clients’ portfolios to determine if rebalancing is necessary. This doesn’t involve market timing, which is notoriously ineffective. Instead, we rebalance when we identify opportunities to realign portfolios with the risk parameters established during calmer times, all while considering the tax implications.

A diversified portfolio that includes both equities and fixed income tends to self-rebalance over time. When panic leads investors to sell equities in favor of safer assets, the value of fixed income typically increases as yields fall. Conversely, when the panic subsides, equities often recover and even reach new highs.

Preparing for Market Volatility

Understanding Market Corrections

A market correction is a decline in the value of a stock market index or asset, typically ranging from 10–20% from a recent peak. Such corrections are a normal part of market behavior, occurring nearly every year. Historically, equity markets experience a 15% decline on average each year, with deeper declines happening roughly once every five years.

It’s essential to understand that no one, no matter how informed, can predict the depth of this or any other correction. For long-term, goal-focused investors, these short-term fluctuations should be of little concern.

For those still in the accumulation phase, market declines present an opportunity to purchase shares at discounted prices. What the media portrays as a “correction” is often a “sale” for those accumulating assets. Conversely, for those drawing on their investments in retirement, it’s crucial to remember that portfolios are designed to serve financial plans, which are rooted in personal goals—not in reaction to current events.

As we navigate this correction, it’s important to remember the four scariest words in investing: “This time is different.” An intelligent investor knows that staying the course and focusing on long-term goals is the key to success during turbulent times.

If you or someone you know is feeling anxious about the current market, we would be happy to provide peace of mind and help reduce financial stress. Feel free to reach out to us at Intelligent Investing for a complimentary conversation about how we can assist in managing your financial future. Simply visit investedwithyou.com and click on the “Get Started” button.

Disclosure: The information provided in this article is for educational and informational purposes only. The returns mentioned, such as the historical performance of the MSCI USA and other market indices, are based on past data and do not guarantee or predict future performance. Investing involves risks, including the potential loss of principal. Diversification does not guarantee a profit or protect against loss in a declining market. All investments should be made based on your own goals, risk tolerance, and time horizon. Please consult with a financial advisor, such as Intelligent Investing to determine the strategy that best suits your individual situation.

Schedule a short discovery call or meeting

What Are Powers of Attorney?

August 15, 2024 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 3 minutes

On our latest episode of Intelligent Money Minute, we had the pleasure of interviewing Chace Campbell, an experienced attorney with over 20 years of legal expertise. During the conversation, Chace broke down the often-confusing concepts surrounding powers of attorney, providing clarity on the differences between durable, limited, and general powers of attorney. For those navigating estate planning or concerned about future incapacities, understanding these distinctions is crucial.

What Are Powers of Attorney?

To begin, Chace explained that the term “power of attorney” essentially refers to the legal authority given to one person (the agent) to act on behalf of another (the principal). This authority can vary significantly in scope, depending on the type of power of attorney in place.

General Power of Attorney: This is the broadest form, allowing the agent to act on behalf of the principal in a wide range of matters. Chace highlighted that this could include managing financial affairs, making healthcare decisions, or handling legal matters, especially if the principal becomes incapacitated and unable to manage these tasks themselves.
Limited Power of Attorney: In contrast, a limited power of attorney restricts the agent’s authority to specific tasks or decisions. For example, Chace mentioned scenarios where someone might need to authorize another person to withdraw a specific amount from their bank account or sign documents for the sale of a property while they are out of town. The limitations are clearly defined within the document, ensuring the agent’s authority only extends as far as necessary.
Durable Power of Attorney: The concept of durability adds another layer to powers of attorney. As Chace explained, durability ensures that the agent’s authority remains in effect even if the principal becomes legally incapacitated. This is particularly important in cases where the principal might fall into a coma or suffer from a condition that prevents them from making informed decisions. Without this durability clause, the power of attorney would typically become void if the principal loses mental capacity.

Legal Incapacity and Its Implications

Delving deeper, Chace clarified what legal incapacity entails and how it relates to the durability of a power of attorney. Legal incapacity can arise in several situations, such as when a principal is in a coma, suffers from severe cognitive impairment, or is otherwise unable to understand and manage their affairs.

Chace emphasized that the durability clause is vital in these scenarios because it ensures that the agent can continue to act on behalf of the principal, providing continuity and protection for their interests. This clause is essential for anyone concerned about the possibility of becoming incapacitated and wanting to ensure that their affairs are managed according to their wishes.

Key Takeaways

As our conversation with Chace Campbell highlighted, understanding the distinctions between general, limited, and durable powers of attorney is crucial for effective estate planning and legal preparedness. Each type serves a specific purpose, and selecting the right one depends on the individual’s circumstances and the level of authority they wish to grant.

For those looking to secure their future and ensure that their legal and financial matters are handled appropriately, consulting with an experienced attorney like Chace is a wise step. By doing so, you can create a tailored plan that addresses your unique needs and provides peace of mind, knowing that your affairs are in capable hands.

Stay tuned for more interviews with Chace, where we’ll dive deeper into his expertise and the valuable lessons he has to share with our intelligent investing audience, so be sure to subscribe to our Intelligent Money Minute podcasts.

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Chace Campbell Bio

Chace is a seasoned legal professional with over 20 years of experience in estate planning, business law, and probate. He began his career in 1997 at Culp, Elliot, and Carpenter, P.L.L.C., focusing on tax and corporate law before discovering his passion for family law, probate, and small businesses in 2002.

Chace is renowned for his exceptional communication skills and careful listening. He is dedicated to helping clients navigate complex legal landscapes, providing comprehensive understanding and effective resolutions through litigation, mediation, negotiation, or forward planning. He emphasizes both resolving and preventing legal issues, offering accurate information, honest advice, and concrete action steps.

Outside of work, Chace enjoys time with his wife Michelle and their three children, preparing for outdoor adventures at REI, and indulging in his passion for coffee.

Credits: This blog was written in part by ChatGPT, an AI language model developed by OpenAI. The content of this blog reflects the knowledge and opinions of ChatGPT, may or may not reflect the knowledge and opinions of Intelligent Investing, and is protected by copyright laws. Please do not reproduce or distribute without giving proper credit to ChatGPT and OpenAI.

Chace Campbell’s Journey to Becoming a Legal Expert

August 1, 2024 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 3 minutes

On this episode of Intelligent Money Minute, we interviewed Chace Campbell, a distinguished attorney based in Greenville, with over 20 years of legal experience. Chace’s story is one of diverse experiences and deep-rooted passion for the law, family, and business.

Early Influences and Entrepreneurial Roots

Chace’s journey began in his childhood, growing up as the only child of a serial entrepreneur. His father’s ventures provided Chace with an early education in business, sparking his interest and shaping his understanding of what it means to be a business owner. He recalls fondly the times his father would take him along to business meetings, allowing him to observe and learn the intricacies of various industries.

These experiences were more than just father-son bonding moments; they were foundational lessons that would later inform Chace’s legal practice. “The education I got from those experiences has stayed with me throughout my life,” Chace reflects. This early exposure to business operations equipped him with a unique perspective that he brings to his legal practice, especially when dealing with business owners and entrepreneurs.

The Path to Law

Despite his entrepreneurial upbringing, Chace always aspired to be a lawyer. Initially influenced by iconic TV lawyers like Perry Mason and Matlock, Chace pursued his dream, earning his JD with honors from the University of South Carolina School of Law in 1997. His early career at Culp, Elliot, and Carpenter, P.L.L.C. saw him specializing in tax and corporate law, but it wasn’t long before he found his true calling.

In 2002, Chace transitioned to focus on family law, probate, and small businesses. This shift was driven by his passion for the interpersonal dynamics within these areas, where he felt he could make the most significant impact. His ability to listen attentively and communicate effectively has made him a trusted advisor for his clients, helping them navigate complex legal landscapes.

Building His Own Practice

After several years of working with established firms, a pivotal moment in Chace’s career came when he was appointed to represent three children whose mother had been incarcerated. This experience was a turning point, inspiring him to start his own practice. In 2002, he founded Chace Law, initially focusing on guardianship cases before expanding to encompass business and estate planning.

Chace’s practice is characterized by a holistic approach, recognizing the interconnectedness of business, probate, and estate planning law. “Those are not really three different areas to us; those are really interconnected,” he explains. This integrated perspective allows Chace to offer comprehensive legal solutions tailored to the unique needs of his clients.

A Day in the Life

Today, Chace’s clients range from entrepreneurs and business owners to individuals dealing with estate planning and probate issues. His practice areas may seem distinct, but they often intersect, reflecting the complexity of modern legal challenges. Chace’s goal is to provide decisive legal action balanced with compassionate understanding, ensuring his clients receive the best possible outcomes.

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Chace Campbell Bio

Outside of work, Chace enjoys time with his wife Michelle and their three children, preparing for outdoor adventures at REI, and indulging in his passion for coffee.

The Case for Global Investing: Beyond U.S. Market Dominance

May 23, 2024 by Hans Blake, CFA, CPA

In recent years, many investors have questioned the value of international diversification, given the U.S. stock market’s outstanding performance since the Great Financial Crisis. With the U.S. stock market significantly outpacing international markets, it’s understandable why some might feel international diversification is unnecessary. However, this perspective might be too narrow.

The U.S. Market’s Dominance

Since 2009, the U.S. stock market has delivered impressive returns, with a total U.S. stock market index fund up over 660%, compared to around 180% for a total international index fund. This dominance can be attributed to various factors such as a larger tech sector, a strong dollar, and a more favorable regulatory environment. Additionally, many large U.S. corporations generate a substantial portion of their sales and earnings from overseas markets, further strengthening the case for investing solely in the U.S.

But does this mean international diversification is obsolete?

The Case for International Diversification

Despite the U.S. market’s recent success, there are compelling reasons to consider international diversification. Historical performance is not a reliable indicator of future performance. The stock market is cyclical, and the best-performing market in one decade may not be the best-performing market in the next. For instance, U.S. stocks performed poorly in the 1970s and 1980s, highlighting the importance of diversification across different regions and markets.

At Intelligent Investing, we believe in the value of a diversified portfolio that spans the globe, echoing the investment philosophies upheld by the CFA Institute. Diversification helps mitigate risks inherent in concentrating investments in a single market, which can be prone to specific economic, political, and financial factors.

Risk Management and Potential Opportunities

Diversification isn’t just about mitigating risk; it’s also about uncovering new investment opportunities. By diversifying globally, investors can potentially benefit from the growth of emerging markets and other regions that may outperform the U.S. market in the future. As legendary investor Peter Bernstein once said, “I view diversification not only as a survival strategy but as an aggressive strategy because the next windfall might come from a surprising place.”

Emerging markets, for instance, offer growth potential that is often unmatched by developed markets. Countries in Asia, Latin America, and Africa are experiencing rapid economic growth, increasing urbanization, and favorable demographic trends. These factors can drive higher returns in the long term. Moreover, investing in international markets allows investors to capitalize on different economic cycles, currency fluctuations, and industry trends that might not be present in the U.S. market.

Conclusion: Embracing a Global Perspective

While the U.S. stock market has been a strong performer in recent years, history has shown that market leadership can change. International diversification remains a prudent strategy for managing risk and potentially uncovering new investment opportunities. By diversifying across different regions and markets, investors can position themselves to navigate the uncertainties of the global economy and capitalize on the growth of diverse markets.

At Intelligent Investing, we stand by our commitment to act in our clients’ best interests at all times, providing holistic and personalized investment strategies. By embracing a global perspective and diversifying investments, we help ensure that our clients are well-positioned for the future, no matter where the next market windfall may come from.

International diversification is not just a theoretical concept but a practical approach to building a resilient and growth-oriented investment portfolio. It’s about being prepared for the ever-changing dynamics of the global economy and seizing opportunities wherever they arise. So, let’s look beyond the U.S. market dominance and embrace the benefits of a globally diversified portfolio.

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Navigating the Ice: A Tale of Family Adventure and Financial Resilience

January 11, 2024 by Hans Blake, CFA, CPA

An Unforgettable Ice Skating Experience

The Christmas and New Year break brought a delightful family adventure as I took our kids to The Pavilion ice skating rink. Amid the frosty air and laughter, an unexpected turn of events unfolded, weaving an unforgettable tale of resilience and vulnerability.

After an hour and a half of joyful skating, my twin daughters approached, their eyes filled with excitement. They requested their older teen brother’s company, seeking the comfort of holding his hands as they navigated the icy rink. You can guess how that went. Knowing that their older brother would not want to hold their hands, I embraced the opportunity to be my daughters’ hero. I laced up my skates, envisioning a daddy/daughter skate that would etch itself into the fabric of their memories.

However, the canvas of smooth ice turned out to be a bit rough, as the Zamboni had missed re-icing before our skate. Undeterred, we embarked on our adventure.

A Tumble and a Lesson in Vulnerability

I should have calculated that the ice was in bad shape after an hour and a half of usage. However, eager to keep pace with the youthful exuberance around me, I took off too quickly, lost my balance, and found myself hurtling forward. In an attempt to regain composure, I leaned too far forward, and the ice skating brakes hurled me forward, resulting in a hard landing on my left shoulder.

Embarrassed and hoping to maintain an air of nonchalance, I rose to my feet. Internally, however, I was grappling with the physical aftermath of the tumble. After concluding our skate with my twins, I headed to the car for a dose of ibuprofen to alleviate the discomfort.

From Ice Rink to Examination Room

Concerned that I had separated my shoulder, given the audible pop and the peculiar sensation akin to hitting my funny bone, I sought the expertise of my brother-in-law, an orthopedic surgeon based in Anderson. The following day, he worked me into his schedule for a thorough examination and X-rays.

The journey to the examination room was an experience in itself. Clad in a flimsy green gown with darker green crowns, an unconventional take on camouflage, I pondered the parallels between vulnerability in medical situations and our approach at Intelligent Investing.

Financial Vulnerability and Intelligent Investing’s Approach

Just as changing into a gown signifies a willingness to be vulnerable for a medical diagnosis, at Intelligent Investing, we encourage our clients to be open about their financial situations. Our aim is to diagnose and prescribe a financial portfolio that not only supports their financial plan but aligns with their unique goals and dreams.

We delve into the intricacies of our clients’ lives, understanding family dynamics to aid in estate planning and unraveling their fears and investment backgrounds. Sensitivity plays a pivotal role, especially when clients have encountered challenges with past financial advisors.

The Importance of a Full Picture

Just as my brother-in-law needed to see the X-rays to comprehend the full extent of my injury, obtaining a complete picture is crucial in the financial realm. Without a deep understanding of our clients’ goals, family situations, risks, and dreams, we cannot choose or tailor an appropriate portfolio to suit their needs.

Misdiagnosis, whether in a medical or financial context, can lead to suboptimal outcomes. In my case, the accurate diagnosis allowed for the prescription of steroids to alleviate inflammation in my left shoulder, paving the way for a gradual recovery.

Gratitude for Professionals and a Financial Invitation

Reflecting on the entire experience, I’m grateful for the professionals who, through years of practice, lend their expertise to guide us through various challenges. As we step into 2024, the team at Intelligent Investing aims to be your financial professionals.

Catering to high-net-worth individuals and couples heading towards retirement, we employ our proprietary Intelligrations® to organize financial complexities. Our mission is to minimize financial stress and maximize lives, leveraging our understanding of complex concepts like inflation, taxes, volatility, and investor behavior.

If you resonate with our approach and seek a financial partner to navigate the intricacies of your financial journey, we invite you to reach out. Whether for a call or a coffee, let’s explore how Intelligent Investing, with its proprietary integrations, can be the compass guiding you towards financial success.

P.S. Exploring Vulnerability in Finance

For a deeper dive into the parallels between vulnerability in personal experiences and financial interactions, I’ve written a blog post titled Getting Naked. Feel free to explore and gain insights into the essence of our approach at Intelligent Investing.

🌐 Sources

InvestedWithYou – Getting Naked

What An Intelligent Investor Should Do with Market Outlooks

November 30, 2023 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 3 minutes

In this episode of Intelligent Money Minute, I had the pleasure of interviewing Larry Swedroe, head of Financial and Economic Research at Buckingham Strategic Wealth, on what an intelligent investor should do with market outlooks.

The Reality of Market Forecasts

Larry firmly grounds his perspective in empirical evidence, highlighting that market forecasts hold no genuine value. The research indicates that predicting the future is beyond the prowess of even the most esteemed experts. Warren Buffett, revered for his investing prowess, hasn’t entertained macro forecasts for over 25 years, emphasizing their futility in guiding long-term plans.

An intriguing paradox emerges when investors revere individuals like Buffett or Peter Lynch yet often disregard their advice. Larry notes the danger of succumbing to predictions by market gurus like Jeremy Grantham, whose forecasts have often faltered, leading investors astray. The empirical evidence reaffirms that forecasting market trends accurately remains elusive.

The Ark Investment Phenomenon

Kathy Wood’s approach at Ark Investments soared on a narrative of disruptive technologies, akin to the late 90s tech boom. However, as Larry points out, this strategy historically led to significant volatility and long-term underperformance. Wood’s fund initially gained traction, attracting billions of dollars during its successful periods, only to face substantial challenges when those speculative trends faltered.

The pattern echoes a cycle familiar in investing: rising investor interest leads to inflows, magnifying the fund’s exposure and driving up the prices of thinly traded stocks. This reinforcement ultimately feeds back into the momentum, creating a self-fulfilling prophecy. However, when these high expectations are not substantiated by earnings, the bubble bursts, leaving investors vulnerable.

Prudent Advice for Investors: Tune Out Market Forecasts

Larry’s analysis emphasizes that while Kathy Wood’s strategies occasionally yield short-term successes, they often culminate in long-term disappointments. This rollercoaster ride in performance, influenced by speculative investments in disruptive technologies, serves as a cautionary tale for investors.

Larry Swedroe’s wisdom is clear: investors should tune out market forecasts and strategists and adhere to well-crafted investment plans. Instead of chasing returns or following the latest headlines, the focus should remain on executing well-thought-out plans. He cautions against hasty reactions driven by market noise.

For those seeking a financial advisor or aiming to reevaluate their investment strategies, we extend an invitation to connect with us. Our goal is to help you minimize financial stress and maximize your life’s potential through informed, tailored financial decisions.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

In his role as chief research officer and as a member of the firm’s Investment Policy Committee and Board of Directors, Larry regularly reviews the findings published in dozens of peer-reviewed financial journals, evaluates the outcomes and uses the result to inform the firm’s formal investment strategy recommendations.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television shows airing on NBC, CNBC, CNN and Bloomberg Personal Finance. Larry is a prolific writer, contributing regularly to multiple outlets, including Advisor Perspectives and ETF.com.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.

What An Intelligent Investor Should Do When an Asset Class Falls Out of Favor

November 16, 2023 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 2 minutes

All Risk Investments: Enduring the Ebb and Flow

Larry emphasizes a fundamental truth: every risk investment, whether it’s stocks, bonds, commodities, or others, experiences prolonged periods of underperformance. Investors often underestimate these cycles, mistakenly assuming that three, five, or even ten years are lengthy evaluation periods. However, historical evidence proves otherwise, with instances where the S&P 500 trailed behind treasury bills for 13-year durations occurring three times since 1929.

The crux of Larry’s advice centers on diversification across various unique risks, aligning with one’s risk tolerance. This strategy, substantiated in his book, “Your Complete Guide to Factor-Based Investing,” promotes the inclusion of assets proven to offer premiums over time. Diversifying globally and including varied sources of risk—be it stocks, bonds, commodities, or currencies—reduces dependency on any single investment, mitigating the impact when a particular asset class is out of favor.

Intelligent Investing: A Holistic Approach

Larry Swedroe’s wisdom underscores the importance of persistence and diversification in an investor’s journey. When faced with an asset class in decline, staying committed to a diversified strategy tailored to individual risk tolerances is key. We invite you to engage with us in exploring your unique risk profile and leveraging our financial technology to fortify your investment journey.

Schedule a short discovery call or meeting

We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing.

Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp.

Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College.