Diversification Issues. Shares Matter. – Monument Wealth Administration







Everybody is aware of that markets have been within the dumps this 12 months.

However do you know in the event you look again on the trailing 12-months from the top of November (11/30/22), the Dow was really up 0.31%?

Whereas we all the time appear to concentrate on the calendar 12 months as a begin/cease date when evaluating efficiency, it’s considerably irrelevant to an investor who’s seeking to develop their wealth.

However earlier than I dive in deeper, I’ve two housekeeping notes:

#1 – We’re on Instagram. I’ve been writing much less regularly as a result of we have now been publishing extra digital content material on Instagram and our Podcast channel (extra on that in #2).

If you’re on Instagram, you’ll want to observe us. We’ve been posting fast and well timed movies (or “reels” as they’re known as). We are going to embody hyperlinks to our Instagram movies in our weblog updates however, to see them in actual time, you’ll want to observe @monumentwealth on Instagram and hit the “bell” icon (see under) to get alerted when new content material is posted. Instagram is quick and simple for us to submit fast and informative video updates. Plus, everybody likes watching the canines in motion and seeing the extra private aspect of our workforce members. Be there or be sq.!

Monument Wealth on Instagram

#2 – Our Podcast has taken off.  I’ve all the time cherished podcasts, however I by no means anticipated how fashionable the medium would grow to be for Monument. The suggestions we get is that our OFF THE WALL Podcast is attention-grabbing in a manner our weblog is just not – it’s conversational and gives not solely a chance for us to have company however to additionally enable listeners to ‘sit in’ on conversations we have now as a Workforce.  As a Workforce, we’re speaking concerning the markets and constructing wealth on a regular basis, so we determined to easily begin recording these conversations and sharing them.

We’re at present aiming to do one asset administration/market overview matter with Erin, Nate and myself as soon as 1 / 4, however we will additionally report and shortly publish one if there’s a well timed matter to debate. They’re enjoyable, straightforward and, for some, extra entertaining than the weblog. Backside line is, we’re actually specializing in delivering you one of the best content material expertise in 2023.  You should definitely see the Podcast web page and use the hyperlinks to subscribe to one of many fashionable podcast gamers – Apple, Google, Spotify, we’re there.

Okay, so again to the markets….

As of 11/30/22, the Dow was down -4.81% YTD. Now evaluate that to the Nasdaq, down -26.70% YTD. If the 12 months ended on 11/30/22, this may have been the SECOND largest optimistic unfold of the Dow to the Nasdaq since 1973 (the 12 months the Nasdaq began publishing knowledge).

That’s a giant distinction…a couple of 22% unfold. And that’s simply value returns which doesn’t account for including in dividends.

The biggest optimistic unfold came about in…drumroll…2000.

How concerning the reverse?

The 2 largest years of outperformance for the Nasdaq over the Dow got here in 2020 and 1999, the place the Nasdaq outperformed by 36% and 63% respectively.

Okay, so right here’s the “So what?!” half…

Take into account this…

Meta: 52 week excessive $352.71, at present $122, wants to extend 187% to get again to the excessive

Google: 52 week excessive $152, at present $101 and desires to extend 51% to get again to the excessive

Apple: 52 week excessive $183, at present $147 and desires to extend 25% to get again to the excessive

Amazon: 52 week excessive $177, at present $92 and desires to extend 94% to get again to the excessive

Netflix: 52 week excessive $632, at present $318 and desires to extend 99% to get again to the excessive

With that in thoughts, two issues matter: Diversification & Shares

First, diversification issues.  An excellent portfolio has a number of pistons within the engine and collectively, they go up and all the way down to make the automobile go ahead.  Proper now, buyers who overconcentrated in huge fashionable tech names are hurting far more than buyers who for instance, maintain a portfolio of dividend paying shares. That pendulum will swing forwards and backwards however typically one of the best time to make a remark about diversification is when that pendulum swing is at its apex.

Second, shares matter. Simply as I noticed in 1999-2000, quite a lot of particular person buyers begin catching FOMO (worry of lacking out) and begin shopping for or over concentrating within the highflyers.  I get it, it’s not straightforward to look at shares you don’t personal preserve going up and it’s even tougher to half methods with them after they preserve going up.  Like diversification, that pendulum will swing forwards and backwards however typically one of the best time to make the remark about overconcentration (and admittedly overconfidence) is when that pendulum swing is at an apex.

Level – it’s straightforward to get overconcentrated when shares are going up 1) overtly by falling in love with them and loading up or 2) covertly by means of regular development inside a diversified portfolio.

Have a stable, unemotional plan and course of to cope with that.

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