Retail Investors Face an Ugly Truth
- Retail investors must face a harsh reality.
- S&P 500’s track record vs. the average Joe.
- Innovation to the rescue once again.
- Also recommended: Nothing drives stocks higher, faster…
When it comes to picking stocks, the individual investor has a pretty poor track record.
In 2016, the S&P 500 rose 12% on a total return basis.
But according to data from Openfolio, a public social network for investors, the average investor’s portfolio earned just 5%.
In other words, the market beat the average Joe by more than double.
It’s not that retail investors are dumb.
More often than not, though, the average investor makes key mistakes that lose them money.
They might make emotional investment decisions — rather than logical ones. They pile into crowded trades at market tops. Or they sell stocks at bottoms when they should be buying them.
The list goes on…
But it doesn’t have to be this way.
In fact, thanks to an innovative new company, investors can spread their bets around to many different sectors and stocks rather than risk a bad bet on any particular one.
No, I’m not talking about mutual funds or ETFs.
Thanks to an innovative and little-known investment strategy, you can be your own fund manager — buying a basket of your favorite stocks for one ultra-low, flat fee.
It’s called motif investing, and it’s taken the investment world by storm.
Senior analyst Martin Hutchinson provides the full rundown below.
Ahead of the tape,
Chief Investment Strategist, Wall Street Daily
Today I’d like to talk about a little-known concept called motif investing. This has been developed by the company Motif Investing, which allows you to pick a motif, an idea, around which they will construct a portfolio.
They also have dozens of preset motifs you can buy into without figuring out the stocks yourself.
You can select categories like values, sustainable planet, fair labor or good corporate behavior.
Although, I have to say that their good corporate behavior portfolio includes Google, Disney and Bradesco, which was a huge bribe-giving Brazilian bank.
I wouldn’t regard any of those companies as behaving particularly well. So your values have to align with theirs if you’re doing their values portfolios.
But the individual motifs can be useful.
You can get motifs like “Used-Car Tuneup” and “Apple Pay.” And then more general motifs like “Emerging Markets Consumer” and “Rising Interest Rates.”
And they charge you a flat, low fee of $9.95 for investing your money in a motif.
Does it work? Well, I think in moderation it does.
I like Emerging-Markets Consumer as a good place to invest, but I’ve never heard of many of the companies they’re recommending there. And certainly, I don’t have time to investigate emerging-market consumer stocks in detail. So it makes sense to put a bit of my money in their Emerging Markets Consumer portfolio.
It has a bit too much middle-market China for my taste. So I certainly am not going to trust my whole wad to this system even if I did think Emerging Markets Consumer was the ultimate next six-month pick.
But nevertheless, if some of the motifs make sense to you, it’s worth putting a little money there.
And as a final note, the motif matching the Ivy League endowment model has underperformed the Standard & Poor’s 500 in the past year by 25 points.
So if motif investing puts more power in the individual to think of ideas himself and deploy money, then it’s worthwhile in taking power away from the professionals who may not be doing a very good job.
This is Martin Hutchinson signing off.
Senior Analyst, Wall Street Daily