is #FEARPORN ruining your portfolio?
Is #fearporn ruining your portfolio?
By Tim Sunderland
I thought I’d have a quick glance over my junk mail for a little inspiration for this write-up and within a few blinks, I’m greeted with an ominous message. ‘Dr Doom’s in the house…’ the subject line reads. ‘
Dr Doom is a renowned economist (so I’m told) who warned the IMF about impending recession in 2006, and he’s back today with a new in-depth analysis of the COVID-19 crisis!
Crikey, I had better get my loo roll orders in - sharpish!
Let’s get one thing clear from the off-set, doom and gloom articles can make for a great read sometimes. Nothing gets clicks like a good ‘ol the world is going to end piece. If I’m being completely truthful, I like nothing more than to indulge in a misery report myself on occasion.
However as sincere and didactic as these reports might seem, be under no illusion - they’re probably ruining your portfolio!
I know, because I’ve been the sucker who’s placed real trades with real money under the influence of the perma-bear. Spoiler alert, it didn’t end well! I won’t be shorting the S&P 500 in a hurry again anytime soon; I’ll tell you that for free.
Now, I’m not for a moment suggesting there aren’t some very clever people out there who enhance their riches through the use of a long/short portfolios. I’ve been lucky enough to look after a few family office portfolios who do exactly this and with great success.
With a proper strategy and risk management, short positions can work a treat.
But this is a far cry from blindly disinvesting your blue-chip stocks or even worse, opening a completely naked short position. In which case I assure you, squeaky bum time is a far more likely outcome vs Christian Bale playing you in The Big Short 2.
However, for the average Joe, it can be all to easy to find yourself in a cacophony of naysayers desperately urging you to subscribe to their fear-mongering investment newsletter “(don’t forget to hit that like button too!” *sighs into empty coffee cup). And if you fall too deep down this rabbit- hole, I suspect not only will you be a miserable, chances are you’ll be poor too.
Factor in dividends and the average annual return of the 500 biggest US companies since 1957 sits around 8%. Not bad going.
Don’t believe me? Allow me to demonstrate.
Let’s first remind ourselves of some of the awful economic shocks we’ve experienced over the 20 years.
The dot com crash (how those Amazon shares coming along?)
2007 – 2008 Global Financial Crisis
Most recently, the COVID-19 crisis
Even with those tremendous economic set-backs, the S&P 500 index value has increased 143% (Jan 31 2000 – August 27 2020). That doesn’t include dividends either.
Factor in dividends and the average annual return of the 500 biggest US companies since 1957 (after the S&P increased its coverage to 500 companies) sits around 8%. Not bad going. Past performance should not be considered an accurate indicator for future results, but in this climate whereby finding yield outside of equities seems to be a mirage, I struggle to make a compelling argument against the wider market.
Vanguard S&P 500 UCITS ETF 3-year performance
If you’re reading this and are new to investing, it can be a little overwhelming at times with so much information readily available online. Each guru throwing in their 2 cents on what to invest in and usually contradicting what the last person said.
It comes as no surprise then that ETF (exchange traded fund) tracker funds have become a popular starting point for investors. In layman’s terms, an ETF trades on an exchange just like a share, but it simply tracks the performance of a whole market instead of a specific company. They’re usually made up of a basket of physical assets which saves the investor from having to buy all the individual shares within a index or wider market (it should be noted however, in some cases an ETF can be made up of complex derivatives to mimic the market it’s tracking and thus the ETF should be considered a complex product).
Heard so much about this magical S&P? Great there’s an S&P 500 ETF available if it takes your fancy. Same goes for the FTSE, or whichever market you want to take part in.
Commonly traded US ETFs include Amundi ETF S&P 500 UCITS ETF (ticker; 500G) and Vanguard S&P 500 UCITS ETF (ticker; VUSA).
Having been a stockbroker for the past decade, I’ve seen a whole array of traders and strategies. From the hard and fast to the patient holders and if you’re curious to know who comes out on top, I’d have to direct you to Aesop’s fable of the tortoise and the hare.
As for Dr Doom, I think I’ll keep you marked as junk for now if it’s all the same.
Before I go, I must stress this is simply my opinion and should not be considered advice.
However, if you’ve carried out your own research and would like to either buy or sell any of the mentioned ETFs, feel free to open an account at https://www.mittomarkets.com/trade.
Important information: When investing in ETFs, your capital is at risk. The value of the investment and any income from it can fall as well as rise, so you may get back less than your original investment.