"Just Buy the S&P 500"

Today's Newsletter:

• My Latest

• Pillars of Investing

• "Just Buy the S&P 500"

• A Money Question

My Latest

My latest (a throwback) dives into what I would look for if hiring a financial advisor.

P.S. This message is important (at least to me), as I have hired plenty of the wrong people.

I teach you:

• Why this matters

• What competency looks like

• Why age matters (not the way you think)

• The role of having the right firepower to help

You can check it out here ⬇️⬇️⬇️

Pillars of Investing

“Shouldn’t I just buy the S&P 500?”

This was me circa 2009, speaking to my financial advisor.

I understood very little about money, but I did know a few things:

• I liked things simple

• The S&P 500 is betting on America

• I knew that compounding could do wonders

I thought, I don’t need any complexity, just give me the most basic thing you've got.

I remember my advisor pulling out a chart showing the previous decade.

The S&P 500 had made virtually no money for investors.

“Wait, so you mean it has returned nothing over the past 10 years?”

Well, fast forward another decade and a half (makes me feel old), and that time is known as the “lost decade”.

A 10-year stretch where “betting on America” or at least the S&P 500 didn’t work out so well.

Yet, like most things in life we humans are quick to forget.

You see, these last 15 years since then have been pretty great for the S&P 500.

Consistent returns outside of a few blips on the radar have led to many investors saying, “Just buy the S&P 500”.

Well, today, I want to show you why that isn’t as great an idea as you might think.

You see, the number one pillar of investing is this:

Stay in the game with the strategy you choose for as long as possible.

That’s really it.

So let me show you how to do that and why just buying the S&P 500 is a buyer-beware situation.

Let’s dive in…

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"Just Buy the S&P 500"

Ok, let’s start with something we can all agree on.

We want to make money with your investments.

We want them to grow as much as possible.

We want them to support a future lifestyle.

Right? Ok, great, well then I am going to show you how to do just that.

Step 1: Know Your Limits

Investing is all about understanding what you are willing to tolerate.

A lot of people start their investing journey by determining their “asset allocation”.

Just a fancy term for how much risk you are going to take.

In short, the more risk you take, the higher your expected rate of return should be.

Yet what most miss about this is that they try to make it all formulaic.

Well, I got news for you, it is as much art as it is science.

Sure, you can determine what the “correct” amount of risk is based on someone’s age, earning power, and time frame.

Yet the thing you can’t account for is what you will do when the market drops 30%.

And no, the spreadsheet you built that shows that eventual drop doesn't do it justice.

Until you have seen the actual account value drop, you don’t know how you will react.

The compounding part of this is that the more money you invest, the bigger the eventual drop.

I remember during COVID, my personal portfolio was down a few million dollars.

Now, I was ready for it, prepared for it, and dealing with this kind of thing every day.

• It still sucked.

• It still felt terrible.

• It still made me second-guess myself.

I share this because step one in this process is understanding your limits.

What can you take without selling out?

Chances are that the percentage towards risk on assets (like the S&P 500) is less than 100%.

Now let me show you how we can reduce those swings…

Step 2: The Case for Real Diversification

The most common investment mistake I see from prospects is this:

A portfolio of 5-20 mutual funds that they think is diversified.

Yet in reality, all of their funds (even with different names) own all of the same main positions.

So while they thought they were diversified, it was actually far from it.

True diversification is done to ensure you can get the highest rate of return for the longest time period possible.

(Remember the one pillar I mentioned earlier)

So, let’s play a fun game.

You have $1,000,000 invested in 1999.

Everyone is buzzing about this thing called the internet.

You being smart want to capture the upside but “diversify”.

So you buy the S&P 500, which houses lots of those companies.

You then wait an entire decade to open your account.

Your ending balance in 2009 = $1,096,535.

A total return of 9.65% over 10 years.

Now I know very few investors that if that was their previous decades performance would stick with their strategy.

(P.S. Remember, sticking with your strategy is a pillar)

So, no, I don’t think that person would have captured the eventual upside the S&P 500 produced from 2010-2025.

Instead of wondering if you would have the discipline to stick with that level of underperformance, there is a better way.

Actually, diversify into all the different asset classes.

Turn out those other asset classes did quite well in the same time period.

Step 3: Recency Bias

So we now understand we need to know our limits and diversify our portfolio.

The last step in all of this is finding the portfolio that optimizes your situation.

Now look, I think a basic index fund (like the S&P 500) can be a great starting point.

Yet, there is far more nuance to an optimized portfolio than buying an index fund and calling it a day.

We are living in a world filled with recency bias.

The S&P 500 has had an incredible run over the past decade plus.

Yet history would tell you buyer beware.

So just understand this, everyone’s investment portfolio should be unique to them.

It should be one they are willing to stick with for the long haul.

But the history, data, and numbers support doing more than just buying an index and calling it a day.

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I make every investment decision based on a simple question.

Is the risk I am taking one I need to take and one I have the ability to take?

If the answer is yes, I continue with another question.

Is this investment one I am willing to stick with for decades?

Now that could be a certain stock, fund, or strategy.

Yet the fact remains ~ If I can’t stick with it long term, I am not buying it today.

I think those questions might help you in your investing journey.

At least I certainly hope they do.

Until next time, my friends!

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A Money Question

What is the best investment you have made?

Consider this question and then consider how you came to make that investment.

What factors when into it, was the upside worth the risk, would you do it again?

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3 Ways I Can Help You

💰 Schedule an introductory call with Moment. We help athletes, entrepreneurs, and key employees build and protect wealth.

📹 Check out my YouTube channel. A safe place to get smarter with your money.

📷 Interact with me on Instagram. Where I provide bite-sized daily content to level up your money game.

Moment Private Wealth, LLC is a Registered Investment Advisor, located in the State of Missouri. Moment Private Wealth provides investment advisory and related services for clients nationally. Moment Private Wealth will maintain all applicable registrations and licenses as required by the various states in which Moment Private Wealth conducts business, as applicable. Moment Private Wealth renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or under an applicable state exemption or exclusion. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice.