These days, being in the RIGHT market is more important than BEATING the market. Read this to know why!
Every Wednesday, we bring you insights about the world of investing because we believe this activity can help you attain true financial freedom through wealth creation. Today, we’ll talk about why being in the right market and having the right assets is more important than beating the market as a whole. Excited to know more? Continue reading below!
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These days, being in the RIGHT market is more important than BEATING the market. Read this to know why! One of the most sought-after outcomes of investors is owning stocks that outperform the market. After all, picking a stock the market didn’t expect to perform well is a rewarding experience from both an emotional and financial standpoint. Due to this, lots of investors scour the markets each day to find opportunities that will lead to market-beating returns. However, investing is less about picking the right company than one might think. It’s true that it’s important to pick the right positions for one’s portfolio and stay away from potential torpedoes. However, a great deal of research has shown achieving successful investment outcomes stems from being in the right assets, instead of actively seeking opportunities that will beat the market. This isn’t surprising, since active investors struggle to keep up with the market, with less than 50% of them beating their benchmarks on average. To make things worse, active managers also charge management fees, making the hurdle to achieve satisfactory returns even steeper. That’s why if an investor isn’t picking his or her own stocks, investing in index funds is one of the best steps he or she can take. Passive investing methods like allocating money in index funds provides investors with an efficient and effective way to build wealth. Because of the effectiveness of this strategy, some investment advisers have made lots of profits for their clients. In fact, Vanguard, an investment adviser, has made a name for itself in the passive investing space because John Bogle, its founder, created one of the first index funds available for the everyday investor. Since the creation of a passive fund that matched the S&P 500, Vanguard has added funds that track the Russell indexes and international markets. Aside from index funds, another asset class that’s worth looking into is bonds. While we typically talk about stocks, we believe that bonds have a place in an investor’s portfolio. According to Professor Joel Litman, Chairman and CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, if an investor needs money in the near term, bonds are a great place to put them. Passive bond funds allow investors to maximize the income-generating properties of bonds, since these are a safe and predictable source of income. This also gives them the right amount of exposure to the bond markets. The cash flows gained from bonds can be reinvested in other bonds or asset classes. This way, when investors find opportunities for active investments, they won’t be making moves using cash, since they can use the money they already have in the bond markets. According to Professor Litman, another great place to put the money gained from bonds is in index funds, which he and his team like to call “bank accounts for credit.” — As we said before, investing isn’t solely about picking the right company. By incorporating the asset classes we mentioned into your investing playbook, you’ll have a diverse portfolio that’s exposed to different parts of the market. This way, when a golden opportunity comes up, you’ll be positioned to take advantage. In a highly unpredictable and volatile investing climate, having the right assets and being in the right market is much more important than beating the market as a whole. Hope you’ve found this week’s insights interesting and helpful. Are you familiar with Julian Robertson? Learn more about how you can avoid macro pitfalls in your investment portfolio in next week’s article! |
