You’ve likely heard this advice before, likely from the educational establishment. You’ve heard the reports; ‘You can’t beat an index so why bother!’ Just ‘buy an index’ they say and your investment decisions are all finished. So, a couple of things to think about here — first, with the Super Bowl coming up this weekend, let me suggest that just because YOU can’t throw a football fifty yards to hit a moving target while half a team is trying to knock you (and your target) down doesn’t mean that Tom Brady, or Patrick Mahomes, or Drew Brees, or Aaron Rodgers can’t. Or more to the point, because many people are not able to do a particular thing (slam dunk a basketball, hit a golf ball 250 yards STRAIGHT, beat an ‘index’) doesn’t mean it’s not doable.

I can’t help but wonder, however, when I hear that reasoning, ‘what index was he talking about’? I usually hear the ‘S&P Index’*.  OK, but just for fun, let’s have a look at four quite different S&P Indices.  For now, we’ll look at the ‘standard’ capitalization-weighted index-in RED, the S&P equal-weighted index- in GREEN, the S&P Value Index-in Blue, and the S&P Growth Index-in PINK. Here’s how each of them looked over the past five years.

  • The RED S&P mainly emphasizes large-cap US Companies- it’s the one most often referred to.
  • The GREEN S&P treats all 500 of the top companies equally- gives smaller companies an edge.
  • The BLUE S&P emphasizes returns on more traditional old-line US companies.
  • The PINK S&P emphasizes the newer, more Tech-oriented companies.

Here’s the math-

  • $100,000 in the Red S&P turned into $200,000 over five years.
  • $100,000 in the GREEN S&P turned into $198,000 over five years.
  • $100,000 in the BLACK S&P turned into $175,000 over five years.
  • And 100,000 in the PINK S&P turned into $260,000 over five years.

I’d suggest that you’d probably rather have had the returns of the S&P Growth index (PINK) over the past five years.  That’s about 30% more dollars returned than the ‘standard’ index.  And then of course there are the midcap, Smallcap, and sector indices.  (and actually, MANY more!)

Perhaps it’s worth considering that you may not want the ‘average’ index return, any more than an avid football fan wants to see an ‘average’ quarterback with an average team on Sunday’s game.

Ron’s Market Minute – Loose Ends

Sometimes it’s difficult to guess what might be on your minds and thus create a market minute.  This is not one of those times.  I’d like to address two questions we’ve heard over the past few days- and hope that if they were on a few people’s minds, they might be of interest to you as well.

Our First Question is related to the GameStop mess market distortions: Are the ‘huge’ hedge fund losses going to endanger the whole financial system, and more particularly, MY investments? Answer is no!

I’ve heard people who suggested that the hedge funds with losses need to meet margin calls and be forced to sell other holdings. This is partially true, but quite a distortion of reality.  It was the center of attention on CNBC’s Friday night special on this topic.  So, let’s propose that the short seller’s losses are around $70 billion.  The worldwide equity market is valued somewhere in excess of $100 trillion.  Even if the entire losses had to be covered immediately (which is not the case) it would require less than $2 trillion of selling (my estimate, worst case).  Not quite a rounding error, but definitely not significant- and not a challenge to the financial system.  My opinion is that if (when?) regulatory authorities get involved THAT would likely cause more damage than the GameStop mess. 

Second Question: I was worried before the election that if (fill in the blank) was elected the entire financial system would fall apart and markets would fail, and now it will be even worse because of the stimulus bill that appears to be a ‘done deal’. Should I buy gold, hold cash, run for the hills, etc.? I actually only heard this from one client, but I’ve seen similar questions in the media.  Here’s your history lesson for today. When Reagan was elected (yes, I voted in that one) the fear was that all markets would crash because of his free-market ideas. Well, surprise! His first year in office saw an amazingly strong market. Same thing when Bush (HW) was elected.  His ideas would crash the markets, but surprise again! His first year in office produced a strong market as well. They were followed by the elections of Clinton, Bush, Obama, Trump (that election was TRULY going to crash markets! And the S&P 500 Index was up 19.5% for his first year), and now Biden. 

We don’t know yet about Biden as his first year is far from over, but with the elections of each of those prior presidents, some proportion of the populace was sure the markets would crash and the world would end. (They often did not believe it as much as they wanted their political opposites to look bad.)  In each case the first year of the new administration produced strong to very strong markets. So, for now I suggest you consider that our country and economy is like an oil tanker — too big to turn around and totally destroy markets in a short time – no matter which person chance puts in the president’s chair. It’s the saving grace of inertia. 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk


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Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

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*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.

Ron Denk is a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Mr. Denk is also an Advisory Representative offering services through Denk Strategic Wealth Partners, a Registered Investment Advisor. Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation.

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Past performance is not a guarantee of future returns.