The Best Investment Shortcut I Know

Have you ever considered this…?

Before anyone ever looks for a shortcut or a hack, they must have first realized [unconsciously] they were on the wrong path. BECAUSE people on the right path don’t look for shortcuts.

Isn’t that interesting?

Do you know why shortcuts are so pervasive today?

Because most people are on the wrong path and they know it unconsciously. But rather than being able to bring this unconscious thought to their conscious mind, it stays buried… and their conscious mind looks for shortcuts (or new ways) to attempt and solve their problem.

And in the world of investing, this shortcut is always thought to be found in stock picks. The thinking goes, “if I can only find a great stock pick, then my financial future will be certain again. The problem is stock-pick hunting is a sure path to lower returns and less certainty.

It’s not investors fault they think this way.

Most investors have been “educated” by the big-box adviser world or the pick of the month newsletter world to believe stock-picks are the answer.

So I started wondering.

Even if someone is on the right path what are some of the MUST DO’s. Not shortcuts but “Musts.”

I have four charts for you to consider.

I’m not sure which chart will surprise you the most… the one with the big-box advisers performance or the one with the “pick of the month” newsletter industry performance. Either way, you’ll know when you see them.

Let me know which one you find most surprising.

The first chart compares the Big-box performance against the S&P500 index without dividends. The Big-box price color is gray and the S&P500 index without dividends is red.

SPX vs Bigbox

Why the difference? Fees. Benchmarking. Rebalancing. And Diversifying when none were needed.  

The next price chart compares the “pick of the month” newsletter world’s performance against the S&P500 index without dividends. The “pick of the month’ newsletter world’s line color is purple and the S&P500 index without dividends is red.

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SPX vs pick of the month

Why the difference? Fear-mongering. Buyings stocks in assets that are falling. Information overload. Too much moving in and out. Noise.

Next I want to point out to you that both the “pick of the month” and the big-box world were only being compared to the S&P500 index WITHOUT dividends, which is the red line in all the price chars on this page.

Notice how the red line (S&P500 WITHOUT Dividends) in the price chart below greatly underperforms the green line. That green line is the S&P500 WITH dividends reinvested.

SPX vs SPXTR1

The evidence is clear.

Big-box advisers and pick of the month newsletters both underperform the S&P WITHOUT dividends being reinvested (red line). AND the red line greatly underperforms the green line (S&P500 Index with dividends reinvested).  

Did you notice what I did?

First, reinvesting dividends matter. And is free. And is a MUST for investors.  

Second, if anyone shows a comparison of their returns to an index, ask if dividends are being reinvested in the index. Because if they are not then you really want to be on your guard. And just to let you know, I’ve never seen a Big-box adviser or pick of the month newsletter compare their returns to an index WITH dividends reinvested. Just saying…

Third, isn’t it interesting that big-box advisers and pick of the month newsletter editors only compare their performance to indices without dividends.

Lastly, some people will comment that they don’t want to just by the index and reinvest dividends because they’ll still have to suffer the large declines in the market, like the 50% decline from the Dot Com Fall. And the 58% decline from the Global Financial Crises in 2008 and 2009.

I get it. And you don’t have to suffer large declines. Even if the market always comes back.

The first question in my 2-Question Investment Strategy solves this problem.

Below is a price chart of what happens if you just ask the first question of the 2-Question Strategy. That first question being asked of the market is the blue line below. The green line is the S&P500 with dividends reinvested.

SPXTR vs Q1

And lastly I want to show you all five price performances on the same price chart.

What stands out the most to you from this chart?

For me…

The three MUSTS of investing:

  1. Reinvest dividends
  2. Don’t own anything that isn’t beating the market
  3. Avoid large declines.

Here’s what’s hard to digest.

None of the MUSTs have to do with stock-picking, re-balancing or diversifying. Otherwise known as everything we’ve ever been taught.

Sometimes the best shortcut is noticing that your on the wrong path.

In Your Corner,

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RC Peck, CFP

P.S. Do you want a powerfully simple investment strategy that includes all three MUSTS? If so you can check us out here.

 

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