The year of the stock picker?
According to a certain slice of Wall Street, each year we hear that this is the year of the stock picker. The latest is Goldman Sachs stating that this is the year that “alpha” returns. Alpha is a calculation that differentiates the value that an investment strategy brings to an investment strategy or stock picking (https://www.investopedia.com/terms/a/alpha.asp).
Every year, we hear this same analysis! Why and who proclaims this? Well, it is the Wall Street analysts and actively managed mutual fund managers who are competing against index investors. This is an attempt to claim that stock selection will outperform index investing and benchmarks. What does the research say? Each year some analysts and some actively managed mutual funds outperform their benchmark indexes for sure. The ability of managers to outperform their benchmarks indexes is not consistent, thus raising the question of how an individual investor can then justify the additional costs associated with active management.
In fact, over a relatively short time period, those same outperforming funds drop to underperformers. So why not purchase the bottom underperformers or buy the top performers that subsequently become the underperformers expecting that in the next year they will outperform? And wave your magic wand and make world hunger disappear! Even those analysts and fund managers who are paid very well to analyze, pick stock sectors and individual niches have limited and inconsistent success. There are many reasons for the challenge to pick sectors and stocks to consistently outperform the market.
Extensive research says that the best strategy is to invest in low-cost indexes that reflect the overall performance of the market. There are also many reasons why both small and large investors employ this strategy if not entirely, in pieces. One important factor in favor of index investing is the low cost of employing this strategy. Turns out that expenses (expense ratio and other fees) are a critical factor in determining the performance of a mutual fund for instance. The higher the expense ratio, the better the stock selection has to be to make up for that cost
More important than hitting it out of the park year after year on investment returns (in a perfectly predictable world, wouldn’t that be nice) our mantra to our investor clients is to focus on what we control.
- Tracking our personal household expense patterns and landing comfortably on owning our lifestyle cost
- Setting aside and consistently saving a specific amount (automated transfers to saving and investment accounts)
- Constructing what retirement means and what it looks like to YOU, the main character in the story called LIFE
Here is a wonderful article musing on finding the ideal age to retire for YOU, not a blanket societal expectation and what constitutes meaningful retirement. Link: https://ideas.ted.com/what-is-the-ideal-age-to-retire-never-according-to-a-neuroscientist/
Happily, this is the approach I’m taking in my “retirement” years. I love what I do and have a team in place that allows me to dabble in both work and play. For me, this happened very organically after years of teaching and networking, and I’m pleased to see there is research that shows the effectiveness of my dabbling.
The SAS financial planning framework to approach is to make and revisit your own "meaningful retirement day-to-day list.” Kind of like creating a vision board for how you would like to create your retirement, ideas include:
- What do you like about your current work/career?
- What elements from your work/career would you like to persist in retirement?
- If you stop working completely, how will you fill your time, and what will continue to provide you with beauty and meaning in your day-to-day?
- Volunteer opportunities
- Mentoring opportunities
- Passion work that may or may not bear an income stream in retirement
- Fitness, walking, yoga for personal and in groups
- Travel with or without organized groups
- Taking classes
- Learning a language
What’s more: why wait until retirement to have that level of enjoyment?
How can you start introducing one of those items into your life now in the smallest way? Things change, it's ok to check in with yourself if you are actually enjoying what you are introducing into your life in small ways. If you find you love a particular activity, continue doing it. If not, move on to the next item on your list or vision board.
Covid: Opening Up
In addition to Minna Fernan joining our team earlier this year, we have another new financial planner joining the team Nasira Iqbal soon. As she begins her journey with SAS, we wanted to offer a recipe for an “immunity-boosting tea for all seasons.” Have your own immunity-boosting recipes or tips? Leave a comment on this blog post below and tell us more.
Immunity boosting tea for all seasons
By: Nasira Iqbal
3 cups water
7 - Black peppercorns
5 - Whole cloves
2 inch stick - Cinnamon
5 - Kalonji (Nigella Seeds, see note*)
1 inch - Fresh ginger
1 inch or ¼ tsp - Fresh turmeric or powdered turmeric (preferably fresh)
1 small cube - Jaggery (found at any Indian store, or skip it)
Juice of ½ lemon including rind
Touch of honey to taste
Add all ingredients except for the lemon and honey to a small pot and bring to a boil. Once boiling, reduce heat to low and continue on low heat for about 30 minutes.
Once cool to sip, serve.
Right before serving add ½ lemon juice including its rind and add honey.
Drink up to twice a day if you feel any symptoms. It is a comforting, healing drink.
Other times without symptoms drink this once a day or three times a week. It has anti-inflammatory ingredients. Enjoy 😊.
*Note: Nigella seeds can be found in any Indian or Middle Eastern store. Here is an article to check out and learn more: https://www.healthline.com/nutrition/kalonji-nigella-seeds. Link to an amazon.com search for Nigella seeds: https://www.amazon.com/s?k=kalonji+nigella+seeds&crid=E6IN1RRCR2Q2&sprefix=kalonji+nigella+seed%2Caps%2C230&ref=nb_sb_noss_2
This website is informational only and does not constitute investment advice or a solicitation. Investments and investment strategies recommended in this blog may not be suitable for all investors. SAS Financial Advisors, LLC and its members may hold positions in the securities mentioned within this newsletter.