By Justin May, Portfolio Manager
Whether it’s through fad diets, lottery tickets, or self-help books, we’re hard wired to seek quick results rather than lasting solutions. Investments are no different. Google seach data is telling – the phrase “Best Stock” is searched more than twice as often as “Index Fund”, and 30 times more frequently than “Asset Allocation”.
Search Trends: Hot Stock Picks v. Responsible Investing
Professional stock pickers of actively managed funds consistently underperform their benchmark indices, yet their funds remain popular.1 Like a fad diet, stock picking promises instant, flashy results, but it’s unsustainable in the long run. The boring truth is: shortcuts will fail, but discipline and patience bring success over time.
Because stock picks get so much attention, the most important investment decision often gets overlooked: how much will you allocate to stocks versus bonds? This ratio impacts performance the most. Please don’t take it lightly.
Don’t accept that your age or income level determines your asset allocation – such statements are generalizations. For example, a 50-year-old entrepreneur running a start-up should probably be a more conservative investor than a wealthy 80-year-old investing for future generations. Consider your cash flow in the coming years, and determine how much of your portfolio is free to allocate to risky asset classes. Then, be honest and ask yourself if risking that amount will cause you to panic when inevitably the market crashes.
A portfolio which aligns with your financial plan and risk profile isn’t as exciting as one full of hot stock picks, but it’s likely to deliver better results.
1. https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2024.pdf
Related Blog Posts
Tariffs, the Stock Market and 3-Card Monte
Stock-Picking is Hard: Here’s Proof
