Stock Market Talking Points {Conclusion}
Today is the conclusion of our Stock Market Talking points series. These posts are based on a Wall Street Journal article published a few weeks ago which we are featuring in serialized form. In the series the author, Brett Arends, takes what I will term 10 very common market talking points from both brokers and financial advisors and posts a rebuttal to each. My comments are in response to each section of the article.
8 "We recommend a diversified portfolio of mutual funds."
If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.
But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.
For various reasons discussed in the past I prefer to build diversified portfolios mostly with ETFs. I have clients who own mutual funds as legacy positions but all things considered I believe that ETFs are a better and more efficient investment vehicle.
9 "This is a stock picker's market."
What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns -- for good or ill -- has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?
I agree with this comment. Study after study has shown that something like 70% of a stock's return comes from market or sector moves.
10 "Stocks outperform over the long term."
Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."
This is similar to point two published last week here. I think the author ran out of different myths when he came to point number nine! See my comments posted there.
Link: Stock Market Myths
8 "We recommend a diversified portfolio of mutual funds."
If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.
But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.
For various reasons discussed in the past I prefer to build diversified portfolios mostly with ETFs. I have clients who own mutual funds as legacy positions but all things considered I believe that ETFs are a better and more efficient investment vehicle.
9 "This is a stock picker's market."
What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns -- for good or ill -- has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?
I agree with this comment. Study after study has shown that something like 70% of a stock's return comes from market or sector moves.
10 "Stocks outperform over the long term."
Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."
This is similar to point two published last week here. I think the author ran out of different myths when he came to point number nine! See my comments posted there.
Link: Stock Market Myths
posted by CR English at 6:39 AM
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