I confess – I owned Silicon Valley Bank. I also own Republic Bank and all the other regional banks that have endured plummeting stock prices over the past few days.
That’s what happens when you own a Coffeehouse Investor portfolio of low-cost index funds. You own the entire market – yes, even companies that go bankrupt.
It doesn’t matter that you own these stocks because these laggards are such a small part of your portfolio that it doesn’t really matter.
What does matter is that you also own the yet-to-be-determined top stocks that will propel the market over the next quarter century and there is only one way to make sure you own these leading companies.
Own them all.
As I pointed out in a recent newsletter, research carried out by Dimensional Fund Advisors (DFA) looked at the best performers in global stock markets for the period of 1994 to 2019. Excluding the top 10 percent of stocks with the highest returns, the cumulative return was barely one-third the amount over the same period. *
How might that impact your financial well-being in retirement?
Let’s give our fictitious stock-picking investor the benefit of the doubt and calculate a rate of return at two-thirds of the market’s assumed 7% growth over the next quarter century.
On a $1 million dollar portfolio, 25 years later our fictitious investor's portfolio could be lagging by over $2 million dollars.
That is a big price to pay for engaging in an investment strategy that even the leading stock pickers on Wall Street have shown to be a fool’s game.
For Coffeehouse Investors, it isn’t worth it.
Smart Portfolio Construction
Build a portfolio that captures "your fair share of market returns" as Mr. Bogle liked to say. Don't miss out on dollars because you didn't diversify properly.
If you have generated $1 million or more of investible assets and are in or close to retirement, build a portfolio with me that propels you over the next quarter century and beyond.
*The Coffeehouse Investor's Ground Rules: Save, Invest, and Plan for a Life of Wealth and Happiness.