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… 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. Today I will dispel the three biggest poverty-producing myths, right here and now.
In the process, I’m also going to tell you our secret to getting a 45% return in 2021… and an annual average gain of 176% since 2016. 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 2022 and beyond.
Let’s start with…
Myth No. 1: Asset Allocation Means Choosing Between Stocks and Bonds
2021 was another banner year for my flagship Palm Beach Letter portfolio. We finished up 45%, while the S&P 500 is up just 24%. That’s a 21-point difference.
And since I took over PBL in June 2016, the portfolio has posted an average annual return of 176%. Over the same span, the S&P 500 has logged an average annual return of 15%.
That’s right… Over the past five 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 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. Your returns will suffer greatly if you’re invested in the wrong places or the wrong amounts.
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 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 about 11% per year over the last decade. 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.
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 Big Bucks for Big 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.
And by just simply avoiding these three myths, you can position yourself to be much better off financially in 2022.
Let the Game Come to You!
Editor, Palm Beach Daily
P.S. Thanks in part to asset diversification, my subscribers consistently beat the market year after year… with my crypto recommendations being the biggest winners across the board.
And while I do expect we’ll see bitcoin rise 10x from here to $500,000 in just four years… a coming crypto catalyst could unleash extraordinary gains.
I call it the “Final Countdown,” and when it triggers, it’ll send mainstream investors rushing into crypto… But once everyone is on board, the biggest profits will have already passed.
To learn more about the Final Countdown and receive the name of my No. 1 crypto to play it, click here.