As we all know, luck (whether good or bad) plays a part in every human being’s life. Quotes about luck abound; The Roman poet vigil said, “Fortune favors the bold”, Emerson said “Shallow men believe in luck. Strong men believe in cause and effect”. Malcom Forbes said, “Luck never gives, it only lends”. However, my favorite quote about luck is from Benjamin Franklin who said, “Diligence is the mother of good luck”. Or, as a mentor of mine paraphrased; “If you work hard enough, you get lucky”. In my experience truer words have never been spoken.
I mention all of this as we start the New Year as I think it is important to ground ourselves in reality when it comes to the current investment landscape, which has been a “one trick pony” of large cap growth stocks producing unprecedented returns. That reminds me of my least favorite quote about luck that a former colleague used to say; “I’d rather be lucky than smart”. I would think, really?? I’m not so sure about that…long term, that is.
Where I’m going with this is that I think we need to recognize that investors in the S&P 500 got lucky last year, producing returns of almost three times the historical average. Having seen this movie before, the concern is that the S&P 500 continues FOMO (Fear Of Missing Out) folks into it at precisely the time when fate shows it’s ugly twisted hand, and not its lovely gilded one.
With that said, I make no prediction as to the end of this bull market. However, in the case of last year, fortune, without a doubt, favored the bold. The question is, are you bold? Should you be bold? More precisely, what parts of your portfolio should be bold and by what measure? A pilot friend of mine told me, “There are old pilots and there are bold pilots, but there are nooldbold pilots”. Food for thought.
In closing, as we start off 2025, I believe it’s important to take a hard look at one’s portfolio and determine what part of last year’s fortune was earned by luck or diligence, as, in my experience, Forbes was right, we only rent good luck, we never own it. Therefore, it is best to focus on the diligence component, which is the factor we can control. One final note on returns. Question: If you earn +20% in year one, +20% in year two, and -20% in year three, what is your average annual return?? Answer: 4.73%. The ten-year treasury bond yield stands at 4.71%* currently.
We continue to be diligent in crafting portfolios given all the dynamic factors in the capital markets and the potential risks they involve. In my experience, this hard work pays off and, from time to time, we’ll get lucky too.
If you have any questions or concerns regarding your investments or retirement plan, please don’t hesitate to call me directly.
*All rates are subject to change. Past performance is no guarantee of future returns. The information contained herein is derived from sources we believe reliable, but its accuracy is not guaranteed.