Playing by a different set of rules
Wall Street is confined to playing the short term game. What will earnings look like next quarter? How will the election affect business performance?
But you can play the long game. This reduces your volatility, increases your probability of making money, and is frankly way less competitive.
This is your main advantage as a small, retail investor over institutional portfolio managers. During the past 150 years if you had held the S&P 500 stock market index for only 1 year, you could have made a profit or a loss, depending on which year.
But if you were patient, and held for at least 17 years in a row then you would have made a positive return, guaranteed, 😀 even after accounting for inflation.
The traditional investment philosophy of having a lot of bonds in your portfolio is not a good long term strategy. Current government bond yields are under 2%. If inflation is over 2% over the next 10 years then you are guaranteed to lose money holding bonds, with some exceptions. The chart above shows the lowest annual return a stock investor received over a 30 year period was 3.2% after inflation. From 2012 to now the returns have been higher than average. There’s no point buying bonds now unless you plan to hold it for strategic or timing reasons.
Diversifying across the world
The United States has the largest stock market, which is why everyone talks about the S&P 500. Over 50% of the global equity market value is in the U.S.
International equities have trailed the U.S. market over the past 10 years. But this doesn’t tell the entire story. According to CIO Meb Faber, the best performing stock returns have been mostly based outside of the United States.
Being too concentrated in one country can make you lose the opportunity to gain from some of the best performing stocks in the world.
Will emerging or frontier markets step in to take market share from the U.S. over the next decade? It’s hard to say. But having a global perspective may be a good approach to reduce risk while maintaining expected returns.
Don’t take your eye of the ball, and don’t put all your investments into one country. Adding a tilt to value stocks may also prove to be fruitful over the next 10 years. A successful investment strategy is mostly about doing a few things right, consistently. And avoid the big mistakes like trading in and out of the markets. 🙂
Random Useless Fact:
Young adults are doing the no pants dance less frequently than before.
What do you think is a good percentage in Canada, US, and the rest of the world? We should also consider the tax efficiency / complication.
I decided to go with 40% Canada, 20% Nasdaq, 20% XUU, 10% VIU, 10% ZEM.
Of course if Canada or the US crashes, the 20% international exposure won’t really help but at the same time, we all know / see the impact of American companies. Chinese or South Korean or European companies don’t have the same impact and if they start showing market takeover, the US will do whatever it can to destroy them (VW and Huawei some examples).
I like to have a 30% Canadian, 50% US, and 20% international balance. Many US companies have huge overseas sales anyway. As I become older I think it makes more sense to have higher Canadian dividend paying stocks for the tax advantage. So maybe when I’m 50 years old, 50% of my portfolio will be Canadian stocks. 🙂
I, myself, went as minimal as possible on Canada due to Canadian economy only contributes to ~2% of the global GDP, I think this is where value investing by the great Warren is kind of wandering off for me personally… yes I still invest in things that I understand and value but like liquid said having tunnel vision or betting it all on one thing instead of diversifying is quite dangerous… I got on the GME bus and made a good run but I sure as hell was losing my hairs during the run lol
Nice work on your GME trade. It was a wild roller coaster ride. Kind of fun, but very nerve racking. 😬
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