Welcome to the Big Bounce

Portfolios, Psychology

I don’t know about you, but the last few months have been some of the wildest and most newsworthy I can remember. From a global pandemic and ongoing social unrest on one end to an incredibly inspiring SpaceX launch and emerging hope for a better world on the other, the roller-coaster of emotions has been all over the map. It’s unpredictable, intense, and at times utterly exhausting.

And the markets have clearly mirrored that crazy ride. It seems like only yesterday that I was writing an article cataloging one of the single worst months to invest on record, but the market has since roared back far faster than even the most optimistic investors expected. That encouraging development seems to have changed investing mindsets a bit, spurring a curious reader to pose an interesting forward-looking question:

What are the portfolios that tend to do better after a crisis?

While I don’t have a functioning crystal ball, I do have a ton of historical data at my fingertips. So let’s dig in and see what we can learn about portfolio recoveries.

How to Prepare for Portfolio Moving Day

Beginner

While I know lots of people who enjoy watching house hunting shows, browsing real estate listings, and imagining life in a new home, I have yet to meet a single person who doesn’t loathe the process of moving. From finalizing the deal on the new place, unloading the old one, packing all of your stuff, arranging the move, and coordinating the timing of every step all while continuing to work your day job, moving can be really stressful. It’s enough to drive many people to reevaluate whether it’s all worth it and just be happy where they are.

Transitioning to a new portfolio can often be equally tricky. Sure, the actual move is just a matter of clicking a few buttons on a computer screen rather than loading your entire life into a truck. But that’s just one step in a long and detailed process. Figuring out the best way to move your money while minimizing taxes and dealing with the uncertainty surrounding future market returns makes moving portfolios a complicated and emotionally-charged endeavor. What if you mess up? What if your new portfolio loses money the moment you buy in?

When in doubt, doing nothing really isn’t such a bad choice. But staying the course isn’t always the wisest decision when that course was set years ago before you really knew what you were doing. It’s ok to change plans when you grow as a person and learn new information, and there’s no reason to let fear and uncertainty get in the way. So no matter whether you’re finally pulling cash out of storage or considering a strategic portfolio change, let’s talk about how to plan a thoughtful financial transition.

Fixes, Updates, and Special Thanks

Updates

The technology gods really threw me a curveball this week. Microsoft rolled out a stealth update of their online Excel tools with what I’ll politely call a bunch of new “quirks”, and many of the site calculators that worked fine for years suddenly were unable to do even the simplest tasks like display numbers correctly. I admittedly push spreadsheets to their graphical limits and have always navigated little bugs the best that I can. But this one was beyond simple formatting issues and quick fixes.

One of the things I’ve learned over the years, however, is not to get too hung up on things you can’t control. So instead of dwelling on what clearly doesn’t work right now, I decided to take this as an opportunity to focus on what I’m good at and step up my visualization game. The end result is a bunch of revamped charts that both work like a charm and should hopefully be even easier to use and understand.

A Faith Not Tested Cannot Be Trusted

Beginner, Psychology

In July of this year NASA is planning to launch the next mission in their ongoing series of journeys to Mars. Named Perseverance, the robotic explorer is built on the successful design of the Curiosity rover that has been wandering the Red Planet since 2012. A machine capable of long-term exploration of another planet is a true engineering marvel, but controlling it remotely is not even the hard part. After decades of practice, even the requirements of launching devices out of the pull of Earth’s gravity are pretty well-known. But do you know what is still a real challenge even for the best rocket scientists?

Sticking the landing.

Asset Allocation in the Most Painful Month

Portfolios, Psychology

As the entire world locks down in reaction to the ongoing coronavirus pandemic, our number one concern as a group is mutual solidarity in saving lives. But the ultimate impact of the tiny COVID-19 virus extends so far beyond the immediate health toll. The disruption to our global economy required to prevent its spread is having profound, deep-scarring effects on the everyday lives we take for granted. Entire industries are closing their doors, countless people are losing their jobs, and any short-term treatment for the disease may simply be a prelude to a much longer financial road to recovery.

So as we shelter in place taking care of our families and waiting for the worst to pass, it’s natural to count not only our stock of food in the pantry but also our collection of stocks in the market. No matter how you invest, I wager it isn’t pretty. It’s not just you. There’s no hiding from the turmoil, and we’re all feeling the pain.

The resulting anxiety prompts normally self-confident investors to suddenly get very curious about how others are doing in the same situation. I get it. So let’s talk real numbers and put the current financial crisis in perspective for different types of portfolios.

The Bear Market Survival Kit for Nervous Investors

Psychology

Unless you’ve been living under a financial rock, you’ve probably heard about the recent stock market turmoil. You know what I’m talking about. That big unexpected thing that nobody saw coming spooked the market into a freefall. The news is full of gloom and doom. The usual safe-haven assets aren’t behaving as you might expect. Normally level-headed people are freaking about about their investments. And you’re sitting there wondering if the financial world really is finally coming to an end.

Even without naming the crisis, I imagine this situation sounds familiar. In fact, despite the false sense of invincibility that blissfully ignorant investors can easily build up during periods of market growth, this kind of thing happens all the time. Portfolio Charts is dedicated to studying that history beyond the pretty long-term averages. From the meager short-term drawdowns to the wildest pandemonium when stocks are truly off their meds, the data is all here in its raw visual glory.

But contrary to the media personalities that live for selling juicy drama, pious lectures, and petty schadenfreude, my goal isn’t to peddle in fear. I’ve been there and understand your concerns, and I simply want to share the knowledge and philosophy that helped me overcome my own investing insecurities.

So on this day where you may be questioning your own decisions and anxious for what the future holds, allow me to offer a little wisdom learned the hard way. Think of this short list of articles as my bear market survival kit, as they are a small window into the mindset and approach that helped me gain the confidence I needed to make money, sleep well, and live a happy life in any market condition.

Investing With Style: How Size and Value Actually Work

Advanced

Sometimes the simplest investing concepts we take for granted are actually a lot more complicated than we think. For example, reasonable people might rationally assume that two small cap value index funds should have identical returns since they theoretically follow the same asset. But it doesn’t really work that way because definitions matter. What does “small cap” mean? Who defines “value”? Read the fine print and two similar funds may be a lot more unique than you realize.

I’ve been thinking about that subtle complexity recently, as in the process of finalizing the most recent annual Portfolio Charts data update I refined the definition of “small cap” to better match common index fund methodologies. The tweak was simple enough, but succinctly explaining what it means and why it matters got more and more difficult the longer I thought about it. The entire process made me realize it might be a good time to have a longer discussion on how stock index fund definitions work.

So if you’ve ever looked at an assortment of large, mid, small, blend, value, and growth stocks and wondered what all of that actually means, this article is for you. It’s going to get a little technical, but if you stick with it you’ll learn something not only about how indices are constructed but also how to use that info to interpret the data you find both here and elsewhere.

The Future of Portfolio Analysis Has More History Than Ever

Updates

Happy New Year!

The rolling of one year to another is an annual ritual full of champagne, fireworks, and overall good times. But far beyond the resolutions that may or may not last, January 1st is a particularly important date for me as it means there’s another year of data to collect, process, and study. And make no mistake, this is no ordinary year. With 2019 now in the books, Portfolio Charts can finally lay claim to a full 50 years of portfolio history!

I figure a landmark that big deserves something special to mark the occasion, so I’m excited to roll out something I’ve been working on for a very long time. Data depth is nice, but the thing that really sets Portfolio Charts apart is the breadth of asset options and the number of home countries covered. So in addition to adding that 50th year of history, I think it’s time to share my latest creation and truly open the numerical floodgates.

What if I told you I’m doubling the number of home countries, adding new assets like European stocks and a bunch of new bond options, and completely reworking every tool to unlock countless additional portfolio possibilities?

Interested? Of course you are! So let’s start 2020 with a bang.

The Top Five Portfolio Charts Insights of 2019

Updates

Happy Holidays!

It has been a terrific year both for me personally and also for Portfolio Charts, and I hope you feel as blessed as I do. I’ve been frantically working behind the scenes for the last several weeks preparing for some exciting new features for the New Year, so in lieu of a lengthy new post I thought I might celebrate the holiday season by sharing a few of the most popular Portfolio Charts articles from the past year.

If you’re new to the site and are interested in a quick rundown of what it’s all about, look no further! And if you’re a veteran reader looking for a good article to share with friends and family to help them think about investing from a new perspective, I’ve got your back. Without further ado, here are the top-5 most popular articles of the year by pageviews sorted in chronological order.

Factor Farming and the Value of Perspective

Advanced

An interesting recent trend I’ve noticed in portfolio discussions is a renewed debate about the resilience of factor premiums versus the good old cap-weighted stock market. It’s entirely predictable that a tough stretch for any investment has a way of bringing out both the nervous supporters on one side and the proud haters on the other. But I really can’t fault the pros for keeping an eye on performance of some of the trendier factors or the investing laypeople for wondering what everyone is even talking about.

What do I think? It’s complicated. So let’s talk about factor investing.