An Unflashy Yet Proven Investment Approach

Corenna Roozeboom Life with Money

November was a great month for stocks.

The S&P 500 – a stock market index that tracks the performance of 500 of the biggest companies in the US – performed better in November than it has all year. By December 1, it had risen over 10 percent from its late-October low, gaining all the ground it had lost earlier this year.

Much of that growth was fueled by the “Magnificent 7”:  Amazon, Alphabet, Apple, Meta, Microsoft, NVIDIA and Tesla are up around 70% since the beginning of the year.

Other assets had a good month too.

As the Wall Street Journal points out, November brought a “simultaneous surge” across stocks, bonds, cryptocurrencies, and gold. Bond prices (as measured by Vanguard’s Total Bond Market fund) rose more than four percent for the month, which is a very large move for the typically less volatile bond market.

Even “beleaguered” sector indexes – such as home builder and regional banking stocks – saw significant gains last month.

So why the sudden “simultaneous surge”?

Proven Investment ApproachThe Wall Street Journal suggests “growing confidence that the Fed will be able to achieve a ‘soft landing.’” In other words, investors finally feel confident that the Fed’s interest rate hikes will successfully rein in inflation – without also causing a significant economic slowdown or recession.

The question now is whether the recent market rallies will last – or whether they’re just a short-lived celebration of an anticipated soft landing.

“Skeptical investors and strategists … point to concerns that inflation could tick higher once again, or the long-feared recession could finally materialize” (WSJ).

Wouldn’t it be nice if we knew?

It sure would be. “Selling all of your stock just before the market falls, and buying shares just before the market rises, is a brilliant strategy,” says Jeff Sommer of The New York Times.

“And if you could repeat the feat over and over again, you would be fabulously rich – a true stock market wizard. But the ability to trade like that is rare, if it exists at all. Without question, it’s so hard that the vast majority of professional traders can’t do it, as countless studies have shown.”

Fair enough: nobody can predict the future.

But surely there are winning buy-and-sell strategies … aren’t there?

Hint: Nope. There are none.

Interestingly, a recent study examined 720 (yes, 720!) market timing strategies, using a “broad range of rigorously applied timing signals.” The results: there was a flaw in every approach.

A better recipe for success is what Sommers calls a “simple, unspectacular strategy.”

As Sommer notes, the study’s results support “simply accepting that you can’t beat the overall market and focusing instead on minimizing your costs [our Italics] so you can get as much market return as possible.”

He continues:

“Broad, diversified, low-fee index funds … will do this for you. But you need to be willing and able to withstand substantial losses, sometimes for extended periods, because while the stock market has risen over the long haul, it often declines.”

And indeed, we saw market declines most recently in August through October, and in 2022. Anyone who wasn’t willing or able to withstand losses would have missed out on last month’s – and the overall year-to-date – recovery.

Sommer’s unspectacular strategy sounds an awful lot like Park Piedmont’s longstanding investment principles.

Keep costs low. Invest in broadly diversified index funds. Take only the risk you can manage. Focus on the long-term.

And then? Ignore the financial media noise.

Because while today we’re discussing recent large gains, there will be declines again – whether next week or next month or next year. And then, just as now, the key will be to trust your personalized asset allocation. It’s a remarkably unflashy yet proven investment approach.