Diversification Saves in Down Markets
The Russell 3000 Index is made up of the largest 2,750 stocks in the United States.
The Russell 3000 Index is made up of the largest 2,750 stocks in the United States.
Estate planning is the process of deciding who will receive an individual’s assets, who will manage their financial affairs if incapacitated, and settle the estate after death. Estate planning is necessary for anyone who owns property that they wish to pass down to a relative, close friend, or charitable interests, and to name a guardian for minor children or provide care for pets.
From 2001 to 2017, the daily median income doubled for everyone in the world.
S&P Dow Jones Indices has published their updated U.S. Persistence Scorecard. A mere 2.2% of actively managed U.S. domestic equity funds in the top quartile for 12 months performance at the end of 2019 stayed ahead of three-quarters of their peers when measured two years later.
Past performance is no predictor of future success, but it is interesting to compare the past performance of different investments.
These charts show the value of $100 invested in real estate (red) and the stock market (blue.)
The chart above shows that over the last 15 years, the stock market was the place to be.
Some investment managers promote a strategy called “Sector Rotation” where they try to time the market by trading between the 11 major sectors of the economy. The gains can be tempting, but the risk is high. For instance, if you owned all energy stocks, you would be up +40% year to date, but if you thought communications was the place to be, you would be down -20%. This is a possible difference of 60% in your returns. According to the chart, which includes more sub sectors, the difference is the highest since 2000.
I think about this chart often during discussions with clients on having too much exposure to single stocks.
Real estate is unique since humans need a physical place to live and work. Economics says the price of those physical places is constrained by the cost of the physical labor to build them.
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