Two years ago, a lot of articles, blogs, and opinions questioned the logic of buy-and-hold investing. Regardless of recent financial history, I still believe that the foundation of any good investment strategy is a globally diversified portfolio. I also believe that any good investment strategy is born from a complete and comprehensive financial planning analysis.
That should not shock anyone. Given the recent financial crisis and the ensuing rebound in equity markets, those who maintained a diversified portfolio have been well rewarded over the past 700 days.
Wait, 700 days?
Yes, 700 days. It has been 717 days exactly since the S&P 500 Index's intraday market low in March of 2009. In those 700 some days the S&P 500 has almost doubled. (I wrote more about the recent market performance in a separate post.)
In other terms, 717 days equals one year, 11 months and 15 days. Alternatively, it's equal to 102 weeks, about 17,208 hours, or about 1,032,480 minutes.
Why did I go to through the pain of these calculations? Because it's a record. According to Kopin Tan of Barron's, it's the quickest doubling of the S&P 500 since 1936.
But how many individual investors actually participated in the doubling of the S&P 500? Simple indexing, eschewed by most active managers, would have resulted in an almost double. Not bad.
The problem is that it's not that simple. I suspect many people flew by the seat of their pants with an undisciplined investment strategy, trying to do everything imaginable to avoid losses, and then trade the market on the way up. Or worse, they sold and went to cash waiting for the market to turn around to get back in.
There's a good chance that a lot of individual investors are looking at their statements with hurt feelings, less than a double, and probably a lot of short-term capital gains tax due on any profits.
Investors who sold around the bottom and then invested after the market turned around missed their opportunity to double. Investors who jumped in and out of the market over the past 700 days based on crazy indicators such as the "Death Cross" or the "Golden Cross" may have been lucky enough to time it correctly, but I bet they missed the double after taxes, too.
I'm not advocating for or against indexing, I'm simply pointing out that the S&P 500 essentially doubled in the shortest amount of time since the 1930s. Investors who had a plan and did not fall prey to the emotional need to "do something" outside of what their financial plan called for are probably beneficiaries of their discipline and patience.
David B. Armstrong, CFA, is a managing director and cofounder of Monument Wealth Management in Alexandria, Va., a full-service wealth management firm. Monument Wealth Management is backed by LPL Financial, the independent broker-dealer and Registered Investment Advisor. David has been named one of America's Top 100 Financial Advisors for two straight years by Registered Rep Magazine (2009 and 2010 based on assets under management) and has been interviewed by several national media sources for the past several years. David and Monument Wealth Management can be followed on their blog "Off The Wall," their Twitter account @MonumentWealth, and on their Facebook page.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. The S&P 500 index is an unmanaged index and cannot be invested into directly. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. International investing involves special risks not associated with investing solely in the United States, such as currency fluctuation, political risk differences in accounting and the limited availability of information, and may not be suitable for all investors.
Securities and financial planning offered through LPL Financial, Member FINRA/SIPC.