A chart for the ages, nicknamed over the years “The Greatest Chart Ever”*.
Please make sure the chart above shows on your screen! If not, please ask me to email you a copy.
Simply put, the chart summarizes the inevitable volatility that stocks experience year-in and year-out, while still producing intermediate- and long-term positive returns. Last week’s TGIF 2 Minutes touched on similar concepts related to sticking with a 60/40 portfolio.
A short but necessary reflection on the “60/40 Portfolio”. (Hint for those wanting to move on to the weekend and stop reading here: the 60/40 portfolio is not dead.)
It would help first to define what a 60/40 portfolio is: an overall investment allocation of 60% stocks and 40% bonds (or bonds and cash). But even “stocks” and “bonds” can be too subjectively defined by the average investor. When it comes to a diversified 60/40 portfolio, the stocks category includes globally diversified equities of all sizes (large & small), styles (value & growth) and industries (all tech – not only super-AI tech – financials, energy, consumer goods, etc.). The bonds category can open a huge “can of worms” because a typical bond fund in a 401k account contains far riskier and longer-dated bonds than meant for the “steady, safe” portion of a retirement savings portfolio. Therefore, the bond category can do its best long-term work when invested in high quality, shorter-term bonds and cash instruments. Please ask me more about this topic.
Long time readers of TGIF 2 Minutes may remember the above photo* which accompanied a February 2018 post describing how inflation feels.
Earlier this year in March, a TGIF 2 Minutes post titled Get Ready for Corona Inflation described what could happen if government spending and stimulus continued unchecked. This week’s reported economic numbers underscore reality: a three-month continued surge in inflation that in several categories has not been seen since the early 1980’s. Lots of people reading this post may not have even been born in 1981 – which was the last time that restaurant meals and food prices rose this fast. To the younger generation, inflation may be learned painfully early in their careers. Inflation hurts EVERYONE, most of all the middle class and low-wage workers. For the wealthier, inflation gradually eats into returns on savings and investments.
Perhaps the perfect way to “look at” 2020 – is in hindsight! Who on earth could have predicted what went down in world and market events in 2020, both bad and good? Who will ever be able to accurately predict markets? And why is this important?
Funny, there will always be those people who seriously believe and will say out loud that:
Is there such a thing as a “Free Lunch”? Developments this week tested the concept.
News broke this past Tuesday that Charles Schwab, followed by TD Ameritrade and E-Trade, would drop their stock, ETF and options trading commission charges. That means free, $0 trades.
