One of the world’s largest money managers says a “tsunami has hit investors.”
The costs of the “tsunami” will be enormous. Retirement dreams shattered. Education savings for kids and grandkids destroyed.
It’s going to get ugly for an estimated 80% of investors. But there is one simple thing you can do to protect yourself from it and beat the markets more than three times over in the process.
Simple Tip to Turn $1,000 into $498,000
We’ve been taught if something seems too good to be true it usually is.
Well, this sounded too good to be true. But the data backs it up.
I’m talking about a simple way to beat the markets. A way that takes just a few minutes a month.
It’s so effective it has turned $1,000 into $498,000.
Too good to be true?
Well, it’s true. But there is a catch.
The catch is you have to do go against a investment orthodoxy. Against one of the most closely held bits of conventional financial wisdom. Against a simple concept even the most novice investor understands and often espouses.
Here’s what I mean.
One of the first things a new investor learns is the importance of diversification.
The theory is that assets go down in prices all at once. History shows real estate will do well while bonds do poorly. Stocks and bonds are inversely correlated at times too.
Stay diversified, stay safe...they say.
A lot of investors listen. And they’re driving trillions of dollars into index funds that track a specific market segment or the entire market as a whole.
Just look at the Vanguard funds. It has made an empire out of index funds. It more than $2.4 trillion assets under management. Nearly all of it is invested directly in indexes.
Pretty simple. Popular too. But here’s the thing. Indexing can be very costly.
Beating the Market the Easy Way
We talk a lot about beating the market here.
It’s not an easy thing to do…at first.
Over time though, you have three options when it comes to stocks.
1) Learn what you have to do to beat the market (i.e. ONLY buying cheap stocks).
2) Buy the market through indexing.
3) Suffer through years of dismal returns.
We choose the first. Your editor probably devotes an outsized portion of life to it (and my wife would agree).
But you don’t have to go to that extreme according to one recent study.
Millennial Invest has released some more great research on one simple index investors can take to really beat the markets.
It simply says to:
Step 1) Eliminate “junk” stocks
Step 2) Get rich
The key here is the definition of “junk.”
Here, junk stocks includes those which are overpriced (expensive), poor momentum (prices are falling), have low earnings quality (low cash flow), and some that are surviving by issuing more shares instead of generating income and cash flow.
If you avoid these stocks -- the 10% of stocks with “junkiest” characteristics -- much better returns will follow.
In fact, over the last 50 years just eliminating 10% of the worst junk stocks in the market increased returns by 2.8% per year.
That’s a huge amount of money over time:
As the chart shows, that 2.8% edge from eliminating junk stocks is the difference between turning $1,000 into $138,000 and turning $1,000 into $498,000 with a little bit of work.
That’s a total difference of 260%.
By now I’m sure you have a big question though.
Why is someone in the financial research business telling you this?
If It Feels Good, Don’t Do It
I realize The Cheap Investor style of investing is not for everyone.
It’s an intense investing strategy that, although honed over the 30+ years, still doesn’t “feel good” when you’re doing it.
In fact, I’ve learned that’s the best way to tell if you’re doing it right.
In the end, investing successfully is about doing what others aren’t.
The data above shows most investors fail to take even the simplest steps to give them the best shot at a great return.
Given the trillions of dollars invested at Vanguard and other indexing specialists, it’s a good bet most investors just aren’t willing to do it.
If you’re reading this, you know there’s a better way. There’s always a better way.
This is a better way that’s not too complicated. And, over time, is worth it to the tune of more than 260% in total returns.