A Surprising Truth About the S&P 500
We often ask clients if they'd invest in something offering a 7% annual return over 23 years. Most say yes initially. But when we add, "even if it meant losing half your money at times," their answers change.
The S&P 500, despite its impressive average return, has experienced significant downturns, including various 50% drops. For retirees, this level of risk might be too much. Younger investors can potentially weather such storms, but those approaching retirement need a more reliable strategy.
At VMG, we believe there's a better way. Our approach focuses on consistent returns with lower risk, making it suitable for investors at all stages of life.
What does a VMG portfolio consist of?
VMG strives to create portfolios tailored to client's goals and risk tolerance
When choosing investments people tend to focus on the return aspect more than they do the risks associated with the investment. At VMG we look at both.
Diversification Beyond Sectors
When thinking about diversification, most investors focus on holding various assets within their portfolios. However, true diversification goes beyond simply holding different sectors of the stock market.
​
For example, many sectors, including technology, banking, transportation, energy, and healthcare, tend to decline during bear markets. This means that even a diversified portfolio of stocks can still suffer significant losses.
​
To achieve stronger diversification, seek uncorrelated asset types. These assets move independently of each other, reducing the overall risk of your portfolio.
​
A Simple Example:
​
Consider gold, equities, and Treasuries. Over time, these assets have shown little correlation. While there may be periods of correlation, they generally revert to their uncorrelated state.
​
Our research shows that investing equally in these three asset types from 2000 to 2022 outperformed the S&P 500 and had a lower drawdown.*
​
Leveraging Trend-Line Management
​
In addition to uncorrelated assets, Vernon Management Group employs long-term Trend-Line Management. This analysis helps identify market trends and sector strength.
​
How Trend-Lines Work:
-
Uptrend: A sustained increase in price over time, often characterized by a series of higher highs and higher lows.
-
Downtrend: A sustained decrease in price over time, often characterized by a series of lower highs and lower lows.​
Benefits of Trend-Line Analysis:
-
Reduced Risk: Helps avoid prolonged bear markets.
-
Improved Returns: Positions your portfolio in sectors with momentum.
Tailored Portfolios
​
By combining uncorrelated assets and trend-line analysis, VMG creates tailored portfolios that balance risk and return. This approach can help you achieve your financial goals while minimizing your exposure to market downturns.
​
*This is for informational purposes only and is NOT a recommendation to buy or sell securities. Past performance DOES NOT guarantee future returns.