Rachel’s note: If you’re a regular at the Dispatch, you know our founder, Doug Casey, is serious about helping you achieve financial freedom. So you can live life on your own terms.
Our colleague over at Palm Beach Research Group, Teeka Tiwari, shares this mission. But he’s made a startling discovery…
Teeka says he’s seen far too many investors fall down what he calls a “hype hole.” And if you do, it could take years longer to reach financial freedom.
On Wednesday, January 27, Teeka will reveal how to avoid getting caught in that trap. Along with his “Blueprint Path” to help you achieve financial freedom this year. But only if you reserve your spot for his free event…
By Teeka Tiwari, editor, Palm Beach Daily
Most investors do worse than the broad market indexes, year in and year out.
That includes regular “retail” investors, actively managed mutual funds, and even some of the world’s biggest hedge funds.
Yet these aren’t all stupid people.
So why do they constantly get bad results?
It’s because they are completely misled.
They have been fed so many myths… for so long… that they simply don’t see what’s right before their eyes.
Again, it’s not their fault.
Most of the people spreading these myths believe them, too. But I’m going to dispel the three biggest myths, right here and now.
In the process, I’m also going to tell you our secret to getting a 56.1% return in 2020… and an annual average gain of 145.3% over the last nine-plus years. And doing all of it with 20% LESS risk than a plain vanilla stock market index fund.
You’ll soon see why we believe we will continue outperforming 99.9% of the world’s investors in 2021 and beyond.
Let’s start with…
Myth No. 1: Asset Allocation Means Choosing Between Stocks and Bonds
2020 was another banner year for my flagship Palm Beach Letter (PBL) portfolio. We finished up 56.1%, while the S&P 500 is up just 18.4%. That’s a 37.7-point difference.
And since I took over PBL in June 2016, the portfolio has posted an average annual return of 203.5%. Over the same span, the S&P 500 has logged an average annual return of 17.1%.
That’s right… Over the past four and a half years, our PBL portfolio has beaten the overall market by an average of almost 12x per year!
How do we continue to crush the market like this? The answer is asset allocation.
Asset allocation is just a fancy term for dividing up your portfolio among different types of investments. And if you were to talk to any reputable financial adviser, it would come up right away.
The adviser would probably tell you that asset allocation is the No. 1 factor in how much money you’ll make from your investments over your lifetime.
Surprisingly, perhaps, that much is true.
Studies show that roughly 90% of your overall returns come from asset allocation… NOT the individual investments you select. If you’re invested in the wrong places or the wrong amounts, your returns will suffer greatly.
For proof, think about someone who only holds cash over 40 or 50 years. There is simply no way they will maintain their buying power as inflation and most other assets rapidly run higher.
However, the myth is what the adviser says next.
It’s almost certain that you will begin discussing various rules for dividing up your portfolio between stocks and bonds.
The classic formula is the “60/40” portfolio – a mix between 60% stocks and 40% bonds, just as the name suggests.
But here’s the thing: Stocks and bonds are not the only assets out there. They are just the ones that most Wall Street people understand. And the ones they get paid to promote.
Meanwhile, there’s a vast world of additional opportunities…
Gold, silver, and other commodities. Real estate. Private businesses. Collectibles. And of course, cryptos… which are essentially a brand-new asset class that has emerged within the last decade.
So the stocks versus bonds discussion is a completely false dilemma. And the person who only sticks to those two particular assets is like a person eating meat and potatoes for breakfast, lunch, and dinner.
It’s not only boring… it’s hazardous to your health.
This brings me to…
Myth No. 2: You Have to Take More Risk to Make More Money
This is a natural byproduct of the first myth.
When you limit yourself to stocks and bonds, you are limited to how well those two particular categories perform over any given time.
That’s risky enough.
After all, history shows that the classic 60/40 portfolio returns 6.2% a year. That type of result will hardly change your life. It will barely keep your head above water.
Most investors know this, and they want more.
But when they limit themselves to stocks and bonds, there’s only one way to try for better returns…
They have to put too much of their money into a smaller number of investments. More often than not, they pile into extremely speculative stocks and wild momentum plays. Yet, very few find success.
When they get it wrong, they lose… big time.
In many cases, even if they merely get the timing wrong, they lose big. And it isn’t just individual investors. It’s the professionals, too.
As the stock market dipped in the first quarter of 2020, 304 hedge funds were forced to close their doors – a 54% surge from the same period a year earlier.
These failures prove that even the most sophisticated strategies often blow up because of improper asset allocation.
Of course, they also illustrate the worst part of the Wall Street myth machine…
Myth No. 3: You Need to Pay for Performance
As I suggested a moment ago, Wall Street makes most of its money pushing people into stocks and bonds.
After all, if you go into that adviser’s office to talk, you’ll pay good money to get your (flawed) asset allocation plan.
Then you’ll pay more money to buy and hold the recommended stock and bond investments – through commissions, fees, and other hidden costs.
If you want to try and do better than the markets, you’ll be charged even more. That’s because actively-managed funds carry higher fees than index funds, even though more than 80% don’t beat the market in any given year.
In fact, over the last 15 years, a full 92% of all active large-cap stock funds did WORSE than the S&P 500.
Meanwhile, hedge funds will typically take 2% of your money every single year just for letting you participate. Then, if they make money with your capital, they’ll take 20% of those profits, too.
All of this stuff is justified by the idea that more performance costs more money.
Well, that just might be the biggest myth of them all.
In fact, every single one of Wall Street’s fees and commissions further REDUCES the subpar gains you can typically expect to receive.
Put another way, you automatically start with a negative return.
So you aren’t paying for performance. The paying itself hurts your performance. It’s really pretty simple.
When you buy into the standard Wall Street myths:
You severely limit your investment choices.
This causes you to take much bigger risks.
And to add insult to injury, you further hurt your performance by forfeiting more money just to get worse results.
Quite honestly, I don’t expect this to change on a large scale. The ideas are too deeply held by Wall Street. They’re pushed onto people with too much force. But the fact that you’re here with us shows that you’ve already started to break the vicious cycle.
That’s because we do things opposite to what Wall Street preaches.
And we don’t just do better than the markets. We absolutely crush them ten times over.
Next time, I’ll go over our eight asset classes and tell you what percentages to allocate to each one.
Let the Game Come to You!
Editor, Palm Beach Daily
P.S. One of my favorite asset classes right now is in the private equity markets. These are companies you buy before they go public. And the gains from these private deals can be life changing.
That’s why on Wednesday, January 27 at 8 p.m. ET, I’m holding Freedom 2021, my first big event of the year. And it’s there that I’ll give you the training to achieve your “freedom number.”
So what exactly is a freedom number? It’s the amount you need to get the freedom you’ve always deserved.
During the event, I’ll also share with you details about my first ever tech deal… one that could help you achieve your freedom number this year.
As a bonus, you’ll also get access to my IPO master class. The class alone is a $500 value. But you’ll get access for free if you register today…