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Roadmap to Retirement

The title of today’s blog is in thanks to the many great sayings of Yogi Berra. Major League Baseball threw out its first pitch four months late, after a long delay of finding a roadmap to return safely with COVID-19 concerns. I may not be going to a game in person anytime soon, yet I’ve got a fridge full of hot dogs and ice-cold drinks to hold me over while cheering on my favorite team from home. So many of Yogi’s quotes can be related to the stock market.

We all need some type of plan or roadmap to get to retirement and stay happily retired (unless, of course, you want to work part-time at the ballpark just for fun). While the TV and internet bombard us with so-called investment gurus, one wiser would look for a financial mentor to help one understand what investments they own and why.

As of late, one of the most perplexing aspects of our investment world is how market summaries you generally read in the newspapers and on websites can badly mislead us about the health of the stock market. The last couple of weeks is an extreme case in point. Chances are, you’ve seen headlines telling us that the Nasdaq Composite index is back up over 10% for the year, testing new highs every other day or so. The S&P 500 index is down just about 1% this year, but not far from its late February high. The markets are moving ahead smoothly or even robustly, right?

As it turns out, most of the gains are concentrated in a very narrow band of companies in the tech sector, particularly the larger tech companies like Amazon (up over 60% this year alone), Apple, Facebook, Netflix, and Alphabet (formerly Google). Those companies are so large that an index like the Nasdaq or the S&P 500 is highly influenced by their performance. These five stocks alone now make up about 15% of the market capitalization of the S&P 500 index. If you just look at the performance of the index, you might not realize how much of an impact mass unemployment and a historic economic slowdown is having everywhere else in our pandemic-infested economy.

Other sectors of the marketplace, which are typically not reported in the press, paint a more realistic picture of what’s actually going on in our corporate landscape. Consider small cap stocks, as measured by the Wilshire U.S. Small Cap Index. These stocks typically outperform large caps over time, but they’ve lost roughly 14.5% of their value so far this year. Real estate, as measured by the Wilshire U.S. REIT Index, has lost 18.61% of its value year-to-date. Look abroad, and the EAFE index of large cap companies based outside the U.S. has lost just over 10% of its value so far this year. Clearly, our markets are not quite as healthy as the most popular indices would have you believe.

The point here is not to focus your attention on gloom and doom, but to suggest that what you hear about as “the market” may not be giving you the whole picture. Rarely have we seen such a disparity between the performance of the popular indices and the thousands of stocks that fly under the radar. We see the robust health of a few companies reflected in the most widely-reported numbers, but that doesn’t mean our economy, at the moment, is robustly healthy overall.

This is where a core and satellite investment portfolio helps diversify an account and provides additional alpha (defined as the excess return on an investment relative to the return on a benchmark index). We are not inclined to give away the secret recipe. Yet, as financial mentors, we’re here to help lead the way in creating an amazing financial plan for your retirement. Let’s play ball!


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