Today’s topic dives into something that may surprise you. Many of us have heard that putting everything in the S&P 500 and “letting it ride” is the best way to invest. With the index performing well recently, this advice sounds sensible—but is it the best approach for everyone? Let’s look at a few reasons why it’s worth considering alternatives to a single-index strategy.
1. Small Companies: A Growth Opportunity
Small companies have historically shown potential for strong returns over the long haul. Research by Fama and French suggests that small-cap stocks—those of smaller, growing companies—have often on average outperformed larger companies like those in the S&P500. Here’s why: while larger companies face big hurdles to achieve high growth rates, smaller businesses have more room to grow and take up more market share so it is potentially more achievable to grow at higher percentages.
What This Means for You: Including small caps in your portfolio may add growth potential. But remember, small-cap stocks come with added risk and volatility, so this isn’t a guaranteed win. There are many other economic factors that may result in environments more or less friendly to smaller companies. Balancing your portfolio according to your comfort with risk and your goals is crucial.
2. A Case for Global Investing
U.S. markets don’t always lead the way. In fact, over the past five decades, the S&P 500 underperformed “risk-free” U.S. Treasuries in two of them (70s and the 00s). Globally diversified portfolios, on the other hand, have tended to perform more consistently over these time periods. In the globally diversified portfolio analyzed in writing this, it showed global equity outperformed treasuries in each of the last 5 decades reviewed. While past performance doesn’t predict future results, investing internationally adds diversity, which may help smooth out the ups and downs.
Why You Should Care: Diversifying your investments beyond U.S. stocks can reduce dependence on a single economy, making your portfolio better equipped to weather changes in global markets.
3. Nearing Retirement? Your Strategy May Need a Shift
The three years before and after you retire are sometimes called the “risk zone” in financial planning. This period is critical because market dips can hit your retirement savings hard if you’re forced to sell assets when prices are low. That’s why it may be wise to begin shifting from a purely growth-oriented approach toward a strategy that generates income. By blending stocks with more stable investments, you create a cushion for when markets get choppy.
What This Means for You: If retirement is on the horizon, consider incorporating fixed income and cash buffers into your portfolio. The goal is to avoid selling assets at a loss and to keep a steady income stream throughout retirement.
What’s Right for You?
There’s no universal investment approach—every strategy needs to match your unique goals, time horizon, and comfort with risk.
At Parkmount Financial, we help clients create financial plans that are customized to fit their lives and adapt as needs change.
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Wishing you success on your financial journey,
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