Is Picking Next Year's Best Performing Investment a Superpower?

In the investment world, there are thousands of possibilities and millions of combinations you can use to build a portfolio.  On top of that, we have to deal with the incredible force of the unknown.  Today, we dig into why picking the best-performing investments in the future is a true superpower.

Watch Now:  Is Picking Next Year's Best Performing Investments a Superpower

• 0:00 - Intro/Disclaimer
• 0:27 - Welcome
• 0:56 - How easy is it to pick next year's winners?
• 2:39 - The longer you go, the harder it gets.
• 4:43 - If professional portfolio managers can't do it, how can mere mortal financial advisors or main street investors do it?
• 6:03 - If you can't pick winners, where should you focus your attention?
• 8:04 - Allocation and Fortitude
• 10:03 - Your goals matter
• 12:44 - Evan's and Vince's superpowers
• 13:40 - Outro
  
  

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Picking the Best Performers is Hard

Past Performance does not predict the future—and the numbers show it!

One of the more frustrating parts of the investment world is how heavily everyone wants to brag about their track record.  We hear about "5-Star" funds, and "Outperforming," but the numbers show something far different.  

Outperforming is a very improbable task.  Those who do it probably benefit as much from luck as they do skill. Check out these numbers from Standard and Poor's and their persistence scorecard.

As you can see, of the 40% of large-cap funds that outperformed their benchmark in 2020, only 12.5% did in 2021.  Only 2% outperformed again in 2022.  If you can do something that everyone can't, you may indeed have a superpower!

Focusing on the big things...

We all love picking winners.  Nobody wants to brag about their kids being average.  In general, we are competitive and love to celebrate our victories.  But in reality, Having the best performer isn't the most important thing.  In fact, it can lead to destructive decisions in the long run.   If your goal is to outperform, it is going to lead to some big mistakes—like performance chasing and emotionally driven buying and selling. 

Instead, it is important to focus on the things that really matter in your life, such as educating your kids, creating a retirement income you can't outlive, and leaving a meaningful legacy.   Rarely do you need to generate market-beating returns to make that happen.  When you focus on those goals, you have a tendency to generate better real-life performance.  

Allocation and Personal Fortitude - The Keys to Longer Term Success

We believe a portfolio built to help you achieve your goals will depend on the longer-term returns from stocks.  But owning shares of those great companies creates a number of challenges , many of which we have seen in just the past few years.  Addressing those challenges comes down to two things, your asset allocation, and personal fortitude.

Whether it is by asset allocation choices...or just plain personal fortitude, taking and maintaining an aggressive posture will be a huge explainer of long-term returns, as long as it's an aggressive posture you can maintain.  -Clifford Asness 4/8/2009

This quote from Mr. Asness near the bottom of the Great Financial Crisis applies as much today as it did following a 57% price decrease.  

Allocation is the amount you have invested in stocks, bonds, and other types of assets.  The more stocks you own, the more the volatility will affect you.  If you can't stand a 50% decrease in your account values, you shouldn't have everything in your account allocated to stocks.  But the more stocks you own, the greater your opportunity for increased returns over time.

Once you build a portfolio designed to achieve your goals, with an eye toward how much risk you can take, you have to be able to stick with it and ride through the difficult patches.  And this is where a financial advisor shines.

Financial advisors must have a high level of technical knowledge; personal finance can get very complex, very quickly.  But your advisor is also going to act as a behavioral coach and counselor.  By helping you avoid costly mistakes and making good decisions within the framework of your most important goals, they can add tremendous value.  

Beware of shiny things and glowing promises...

Most people love winners—including us.  But the ability to consistently identify—in advance—is nearly impossible to deliver on a consistent basis.  The stats back that up.  

The truth is, most people don't need to beat an index.  They need returns that will allow them to...

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• Create a growing retirement income they won't outlive
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• Educate their children
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• Leave a meaningful legacy to the people and organizations near to their hearts.
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And they need to do it in a way that reduces their anxiety levels about what is going on in the world around them.  And that is where a financial advisor can help you.

We can help you...

Our team of financial advisors has a specific set of powers.  They possess technical knowledge about the world of personal finance.  More importantly, they understand how all of those complicated pieces fit together.  Lastly, they can help put it together for you in a plan you can understand and execute.  To reach out to our team, fill out the form below.

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