Mirror Mirror on the Wall, Which Stocks Performed Best of All?
By Iris Buczkowski
January 8, 2020
A new decade is upon us and with that is the opportunity to reset the bar on how the markets have performed and which companies showed up at the finish line. It’s also a great chance to review where we have been, how much progress we made, and what the future may hold. Now, as with anything related to market activity, performance can never be guaranteed, but over the long term history has shown us that investing for the long run yields better returns when we identify our risk tolerance and faithfully execute on a well-build savings plan.
I recently reached a milestone birthday and had the amazing fortune to celebrate with those who are nearest and dearest to me. In traditional fashion there were many pictures shared of me from a little girl to a grown adult and everything in-between. Yes, that includes those awkward teenage years! Looking at the top stock performers can be equally as fun. Look at the Top 10 stocks over the past decade below:
It’s probably not a huge surprise that the one-two combination is something we all likely helped catalyze over the past ten years by ordering Domino’s and having a Netflix-and-chill night on more than one occasion. And if you look at how much money you would have earned by investing $1,000 into each of these companies over the same time you would have made out very well. But this is not how long-term investing should be incorporated into your overall financial plan. The key to successful outcomes is proper diversification.
Now you may be looking at the companies and thinking, “geez, Iris…I see diversification. I see healthcare companies and financial organizations, energy and consumer discretionary names.” This is true. But what you may not have focused in on is the bottom line of the overall S&P 500 Index, which is a composite benchmark of just over 500 companies that trade in the marketplace. The S&P 500 is a broad basket of companies that are publicly traded and is a much better representation of the overall market, not just a name here or there in a particular sector. The Dow Jones Industrial Average is not a good representation of the markets either although it is the most widely followed index. The Dow represents the largest 30 companies traded.
Diversification does not stop with only companies domiciled in the United States. A good portfolio manager will look at all parts of the world and the securities that you may want to own from a global perspective. You also would not necessarily want all your money in equities for growth. Many investors want less risk, especially after going through two significant down-market cycles over the past 15 years. In this instance we look at fixed income options, which are not associated with the equity markets, and liquid alternatives to provide stability in the face of potential volatility. No two investors are the same because everyone feels differently about their money. And that’s where working with your financial advisor becomes an art, not a science.
There is no right or wrong way to invest your money because it will change over the course of your life naturally as you walk through the different phases of it. The correct approach though is to construct a plan that allows you to be able to put your head on a pillow and sleep at night. This is a combination of a solid financial plan alongside a well-diversified investment portfolio. If you choose the sprint and do well in a short amount of time with a couple of hot stocks, that’s awesome, but it will not likely help you train for the marathon of life long financial success.
Iris Buczkowski is the founder of Birch Wealth Management (birchwealth.com). Original content provided by Iris is for educational purposes only and should not be construed as investment advice.