🏃‍➡️ Running your own race

Hey hey, happy  ̶M̶o̶n̶d̶a̶y̶ Tuesday.

Ta ta, summer! Back to work, folks. The S&P 500’s roughest month of the year is September for a reason.

We’ll ease on into the week with a 3-minute digest on why people care so much about beating the S&P 500.

Also, a reminder that THE CHART PACK limited series is live, and the critics are raving! Keep an eye on your inbox every Thursday to get a series of charts and commentary compliments of Chart Kid Matt and yours truly.

Smash the button below to share OptimistiCallie with a friend 😊

A double advantage in fixed income

Don’t look back.

Any good running coach (or wise mentor) will tell you this.

When you’re running a race, you never look over your shoulder.

Not only does looking back require you to twist your body and contort your running form, but it also shifts your focus to your competitors. It damages your mental edge and instills a sense of paranoia that’s hard to shake. You will always be afraid of the runner gaining on you, or you’ll wonder how long you can keep your lead. Your focus is forever fractured.

I am not a professional – or even a competitive – runner. I am a hobby runner. Running is my preferred form of exercise. It’s the fresh air, the space to let your mind wander, the rock ballad that comes on right when you’re hitting a speedy downhill. And of course, it’s the ability to beat your best time.

I learned quickly never to look back. Trying to keep up with other people is a rookie mistake that leads to injury and burnout.

I don’t need to keep up with the speedy dude wearing the Boston Marathon coat on the West Side Highway. His easy pace is minutes faster than mine. I just need to keep my legs moving and my breath cycling at a conversation’s pace.

For me – and many others – success is a personal record or a runner’s high, not a medal.

One of the most common questions we get from prospects is how we plan to beat the S&P 500 in our portfolios.

Some ask as a right of passage. A box they need to check to know we’re worthy of touching their hard-earned money. Others ask because they’ve heard exceeding a benchmark is table stakes in a professionally managed portfolio. Maybe from ChatGPT, maybe from a human friend.

Often, a technical question like this is a window into a greater need – a void of trust left from a former advisor, a desire to clarify what an investor actually needs to retire at 55 and pay their children’s private school bills. Luckily, our advisors are the best in the game at uncovering your buried need.

But every once in a while, I have to have the talk with a client.

Yes, we have benchmarks (the MSCI ACWI for stocks, actually) and we can tell you all about our portfolio performance.

Still, the best benchmark is yourself and what you need.

Never look back. Run your own race.

I know this isn’t the flashiest advice at a time when everybody seems to be riding on the wings of Palantir and Nvidia to portfolio nirvana. We’re all indoctrinated to find that golden ticket stock – and while we understand it’s hard to do, we know Wall Street is paid to do this for a living. It’s literally our job to find your edge.

Here’s the thing, though.

If you’re searching for external validation, you will never get ahead.

Not in life, and definitely not on Wall Street.

For one, the majority of professional investors can’t beat the S&P 500 consistently over time. Over the past 15 years, only 10% of large-cap fund managers have beaten the S&P, according to S&P Dow Jones data. We’re not even talking about every year, just over a 15-year timeframe. A timeframe that matters more to you if you’re investing for retirement or a goal down the road.

The risks you take to exceed market returns one year may doom you the next.

Look at this chart of S&P 500 sector performance by year. 

Buying the biggest tech companies has worked in a lot of years, but it failed spectacularly in 2022. If we look over that 15-year period stated earlier, an investor would’ve had to duck and dodge in and out of several different sectors to find the winners every year. By the way, ducking and dodging isn’t an investment strategy – it’s a way to rack up costs and expose your portfolio to pain.

And by limiting yourself to the S&P 500, you’re naturally ignoring markets across the pond. International stocks have their years – both as cushions during U.S. crises and as leaders during important power shifts. Like this year, international stocks are exceeding U.S. stocks by  the widest margin since 2008.

Nerdy performance talk aside, there’s a much simpler reason to drop this weird obsession with beating the market.

You are not a professional investor. You don’t necessarily need to outperform the S&P 500 in the first place.

Wall Street managers get fat paychecks when they beat their benchmarks. They get fired for years of missing the benchmark over and over again.

You don’t. Your success does not depend on exceeding some arbitrary return. It’s to grow your wealth faster than inflation over time without making any dumb mistakes that blow up your portfolio.

You are not your neighbor, either. Or your obnoxious father-in-law, broke cousin or arrogant coworker. You have different hobbies, passions and needs in life.

You also have different trajectories for whatever you’re investing in. Your dear father-in-law really only needs about 3 to 4% a year to keep his portfolio income growing faster than prices. You need 6% a year over the next 30 years to build that nest egg. Local turkey trot versus lazy river.

Why, then, would you both aim for the same target?

In the end, I think every investor secretly yearns for the same thing: stability and consistency. 

The peace of knowing they’re doing the right things to become wealthy one day. Or at least to finish the race without any regrets.

You can get this, even without a guarantee of performance. By understanding how much risk you actually need to take (probably less than you think TBH), and how to build the right portfolio to get there. By taking measured amounts of risks while playing it safe enough to sleep at night.

By not looking back. Focusing on forward motion and defining your own success.

Thanks for reading!

Callie

Like what you just read? Share it with a friend, pretty please 😊