Global Diversification Matters
Are you only invested in the S&P 500?
First, let’s define the S&P 500 index. The S&P 500 is made up of roughly the 500 largest companies in America measured by market capitalization.
If your portfolio is only U.S. large-cap stocks, you might be missing big opportunities — and taking unnecessary risk.
Concentration Risk:
The S&P 500 is more concentrated now than it ever has been in the history of the stock market...
The average prospect who walks through our door has around 80%-100% of their invesatable net worth in the S&P 500 - which also means ~40% of their investable net worth is in 10(!!) companies. A massive threat to early retirement is concentration risk - it's very important to stay aware of the massive concentration we're seeing right now.
That concentration risk goes down significantly as we diversify outside of the S&P 500 & the US stock market.
We Need to Understand What We Are Giving Up by Picking S&P 500 as Your Only Investment
There have been times in history where US Stocks have significantly underperformed other areas of the stock market. From Jan. 1 2000 to Dec. 31st 2009 (10 years!) if you would have invested $100,000 in the S&P 500 - you would have only $91,000 at the end of that 10 year period.. not great!
Meanwhile, during that same lost decade 2000-2009:
• Emerging Markets: +9.78% annualized
• U.S. Small Cap Value: +8.27% annualized
• U.S. Large Cap Value: +2.47% annualized
• International Developed: +1.63% annualized
Other areas of the US Market and the World were up significantly during this period of time – there are other investment opportunities outside of the S&P 500 – that sometimes, significantly outperform.
Diversification Matters!
Over the last decade S&P 500 performance has been really good, however, there have been periods of time where it’s significantly lagged other asset classes.
Even looking at the past 25 years - the S&P 500 has been one of the lowest performing asset classes. Please reach out to us - fee-only financial advisors in Cary, NC if you think your portfolio may be too concentrated!
