Do we really have to have a diversified portfolio to achieve the dreams we set up? Let’s dive in.
As of April 25th, 2022:
S&P 500 -9.99% U. S. Large Cap
MSCI EAFE -9.85% International Stocks
MSCI EM -17.73% Emerging Market Stocks
U.S. Aggregate -9.49% U.S. Bonds
U.S. Corporate -12.38% U.S. Corporate Bonds
We know that you have felt this pain. Just like you, we are not immune, we feel it too.
It is easy to focus on what we are experiencing at the moment (recency bias).
Zoom Out
Let’s zoom out and look at how these asset classes have performed over the prior three years:
S&P 500 53% U.S. Large Cap
MSCI EAFE 38% International Stocks
MSCI EM 98% Emerging Market Stocks
U.S. Aggregate 1.68% U.S. Bonds
U.S. Corporate 3.93% U.S. Corporate Bonds
From time to time, we will receive a form of the question, “What is your market outlook for (insert year)?”
We answer that we do not want to waste your time … It is unknowable.
Instead, we focus on our Investment Philosophy at Know My Plan:
Philosophy
- Six months in an emergency fund
- Five years’ worth of required portfolio income in fixed income
- The balance invested for long-term growth in mainstream companies
The Cost of Admission
Being an investor in mainstream companies is not easy. We believe that there are two truths that you must come to accept as fact to earn the historical trendline return of ownership of the mainstream companies that have been through the ups and downs of the market.
- Every year there will be a 15% drop in the value of your diversified portfolio of companies.
- Approximately every five years, there will be a 30%+ drop in the value of your diversified portfolio of companies.
However, for those with the fortitude to weather the short to intermediate-term price volatility, we believe we will be rewarded with a premium return for our efforts.
The historical trendline return of ownership in these companies has been approximately 10% annually going back to 1926.
[Past performance is not indicative of future returns.]
CONCLUSION
Not every person needs to own a diversified portfolio of companies to make their financial dreams come to fruition.
If your dreams have changed, please let us know. Did anything in your situation change? Please let us know.
If you would like us to take an assessment with you of whether you can achieve your dreams without ownership of mainstream companies, we are glad to do an analysis. We will give you a straight talk of the pros and cons of such a consideration.
If we have communicated correctly with you over our relationship, you have not had to sell one equity position to meet an income need. In weakness, like we are all experiencing now, we never want to be forced to sell our company ownership.
For most of the families we guide, company ownership continues to give us the best chance to pursue our dreams optimally.
Regardless of any news headline, we believe in the power of owning companies with powerful brands and clean balance sheets.
Our dream is to make your dreams a reality.
Sincerely,
— Nic & Jeff
We are a full-service financial advisory company that allows you to make a one-page plan for your money and prepare for your future. Learn more about what we do and how we can help you here.
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