Did You Know?

“Did You know?” is a popular sports trivia segment on ESPN.  While watching the Golden State Warriors play the Utah Jazz last night my wife said the Jazz logo didn’t make any sense.  I informed her the franchise originated in New Orleans and therefore they’re called the Jazz.  I then rattled off a few minutes’ worth of valuable sports trivia.

Did you know also applies to the world of investing.  Here are few DYK’s.

Did you know individuals who complete a financial plan have three times (3X) the assets when compared to those individuals who don’t do any planning?

Did you know stocks outperform bonds?  The 90-year average annual return for common stocks has been 10% while long-term government bonds returned 5.6%.   A one dollar investment in large company stocks is now worth $5,386 while a dollar invested in bonds is worth $132.[1]

Did you know small company stocks outperform large company stocks?   The Dimensional U.S. Small Cap Value Index averaged 13.3% from 1928 to 2015.   A one dollar investment is now worth $58,263.   The Dimensional Large Cap Value Index averaged 11.1%.   A dollar investment in the large cap index is now worth $10,414.[2]

Did you know diversification is safer than concentration?  A diversified portfolio of large, small and international companies allows you to own stocks from around the globe.   Adding bonds and cash to your portfolio will reduce your risk.   Moving to a 60% stock and 40% bond portfolio from an all stock portfolio reduces your risk by 24%.

Did you know passive index investing is better than active stock picking?  The Standard & Poor’s study of passive v. active reveals that over 15-year period 95% of active fund managers fail to outperform their benchmark.   This is also the case for 1, 3, 5 and 10 years.[3]

Did you know lower fees are better than higher fees?  The less you pay in fees the higher your return.   This is obvious but needs to be stated.  Less is more.

Did you know working with an investment advisor can help you increase returns?  A study by Vanguard quantified an advisor relationship can add 3% in net returns.[4]   An advisor will help you with financial planning, estate planning, investment planning, charitable planning, and much more.  If you’re going to work with an advisor, make sure they’re a Certified Financial Planner™ or Chartered Financial Analysis.

Now that you know what will you do?

Two are better than one, because they have a good return for their labor:  If either of them falls down, one can help the other up. But pity anyone who falls and has no one to help them up.  ~ Ecclesiastes 4:9-10

Bill Parrott is the President and CEO of Parrott Wealth Management.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

Note:  Your returns and results may differ than those highlighted in this blog.

May 9, 2017

[1] Dimensional Funds 2016 Matrix Book.

[2] Ibid.

[3] https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf

[4] https://www.vanguard.com/pdf/ISGQVAA.pdf

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