I know we have some aggressive growth investors in our group. Aggressive growth investors are willing to take on a bit more risk to achieve investment returns that are above average. There are several good fund options for people seeking higher growth in their accounts.
As usual we will use the S&P 500 as the benchmark against which we will compare these higher growth funds. We will also only be looking at growth funds that have been in existence for 20 years or more.
Many funds can achieve high returns for shorter periods of time (three years, five years and even ten years). Fund managers often place big bets on a small number of companies or on a specific sector or the economy (lithium batteries, artificial intelligence, etc.). If they get lucky and these big bets payoff, they can post huge gains.
But there are very few growth funds that can guess right all the time. Often the big gains that come when the big bets payoff are offset by big losses in other time periods when their big bets fail to deliver.
As I have mentioned in other posts, the Nasdaq is the growth index fund. You can expect to earn 9% to 10% per year with an S&P 500 index fund over twenty years or more. With a Nasdaq index fund, you would be looking at annual returns of 10% to 11% per year. The more concentrated Nasdaq-100 index fund would provide annual returns of 11% to 13% per year.
The higher returns in the Nasdaq come mainly from a higher concentration of technology companies – software companies, semiconductor companies, etc.
Higher growth does come with more volatility. More volatility means that these funds decrease more when the stock market collapses. For example, in 2022 the S&P 500 lost about 19% and the Nasdaq lost about 32%.
Fidelity offers some technology focused growth funds that perform as well as or even better than the Nasdaq over long periods of time. The Fidelity Growth Fund is similar in makeup and performance to the Nasdaq 100.
The Fidelity Software & IT Fund is more concentrated in technology companies than the Nasdaq and it has outperformed the Nasdaq-100 over the last 20 and 30 years (4% higher per year over 30 years). The Fidelity Select Tech fund is also more concentrated in technology companies and has performed about even with the Nasdaq-100 over the last 20 years and about 2% higher per year than the Nasdaq-100 over the last 30 years.
The Vanguard Admiral fund and the Vanguard Information Technology fund have posted 20 year returns that are about equal to the Nasdaq-100. When results are similar it is safer to stick with an index fund.
There is one “stock picker” fund that stands out when you look at top performing funds over the last 30 years that is not focused on technology companies. It is called Baron Retail Partners, and it often places big bets on single companies.
When I last checked, Baron had half of their assets invested in Tesla. They also use leverage which means that they borrow money to invest in stocks. These strategies add higher levels of risk to this fund. It is too risky for me but their performance over 30 years is exceptional. They beat the Nasdaq-100 by 3% per year over the last 30 years.
Keep in mind that there are 9,000 funds to choose from and only a handful that can compete with the best index funds like the Nasdaq. This is why I always advise you not try to pick individual stocks. If the highly paid, most experienced fund managers that have a large staff of analysts can’t beat the best large cap index funds, what makes you think you can? There are less than ten people on the planet who can pick stocks well enough to beat the index funds over 20 years or more.
If you are an aggressive investor, these are the funds for you. You can do even better when you combine aggressive growth funds with my Market Signals product. Market Signals keeps you 100% invested in these growth funds during bull markets and protects you against losses in bear markets. You will need the loss protection because of the higher volatility that comes with growth funds. Gains of 15% per year are possible with this strategy compared to your current results of 6% to 7% per year.
If you are interested in a safer and better way to invest, check out Market Signals here.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
SUMMARY:
Did you know that the stock market is in growth mode about 84% of the time?
Did you know that the stock market grows at a rate of roughly 15% per year during these growth cycles?
So the odds are pretty good that we are in a bull market right now.
It if weren’t for those dreaded bear market crashes, investing would be easy.
Successful investors capture most the big gains during the 84% of the time the market is in growth mode, and they avoid most of the big losses during bear markets.
When you understand how capitalize on these 84%/16% odds, you can do this too.
PUTTING THE ODDS IN YOUR FAVOR
This pie chart makes the situation pretty clear.
Because the stock market (the S&P 500) is in high growth mode 84% of the time, you want to be aggressively invested in the stock market most of the time. The odds are pretty good that we are in a bull market right now.
Bear market crash cycles only happen about 16% of the time, but because they are so painful (average price drop of 39% per year) that people are afraid of being aggressively invested in the stock market.
This is the dilemma that stock market investors face.
Nobody can predict when the next big bear market crash is going to happen or when the bull market will return after a collapse.
This is also why the traditional “Buy & Hold” strategy of the investment industry is so painful.
But it is also why the traditional “Buy & Hold” strategy works to some degree. If the market is growing at a high rate (15% per year) most of the time (84% of the time), stock market investors end up winning in the long run.
But those crashes are incredibly painful financially and emotionally.
If you had a system to get out of the stock market when the risk of a collapse was high, you would be much more confident about investing aggressively in the stock market, wouldn’t you?
And if you had a system to get you back into the stock market when the odds of a bull market run were high, you could capture most of those big 15% per year gains while avoiding most of those painful 39% drops.
That would be a good thing, right?
No one can predict what is coming next but since the market is in growth mode 84% of the time, the odds are pretty good that a bull market is right around the corner.
This is what my Beyond Buy & Hold system is about. This is what I spent years and years creating and perfecting.
If you know you have an alert system in place to get you out of the stock market when the odds of a crash are high, you can sleep better at night and you can be very confident about investing aggressively in the stock market when the coast is clear.
The concept is simple. The math behind the system is complex but I came up with a way to make this proven system used in my hedge fund available to all 401K investors. I call the system Market Signals. We do all the work, and we simply tell our customer what to do based on the data and the signal.
Market Signals is not some day-trading gimmick. It works because it is based on the right strategy, basic math and common sense. It is not perfect, nothing is. It is just much better than the very mediocre strategies and systems that are available to ordinary investors.
Our customers are 100% invested in the stock market and have been since November. The stock market is up about 10% since November. A 10% gain in two months. Normally, investors would be freaking out having 100% of their money in the stock market. But not when you know you will get out before they could get wiped out in a market meltdown.
Our customers can sleep better than all of the other investors who have been told to put 70% of their money in stocks and 30% of their money in bonds. All of the other investors are told to just buy and hold and watch 70% of their money get crushed in a bear market and they found out the hard way that bonds can lose money too – see 2022. The financial advisors make this asset allocation approach sound safer, but it isn’t. All it does is lower your investment returns.
If you are interested in a safer and better way to invest, check out Market Signals here.
For a more complete explanation of Market Signals and how it could rescue your retirement, check out my book, FIX YOUR 401K.
Happy Investing,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
SUMMARY:
The stock market as measured by the S&P 500 just reached a new all-time high. Technically this means that the bear market for the S&P 500 is over. The Nasdaq is still 3% below its all-time high and the Russell 2000 (small cap stocks) is still 20% below its all-time high.
This does not mean that we are out of danger. Markets will likely remain volatile until there is clear evidence that inflation is under control and that a recession will be avoided.
The trend has been positive for the market since the end of October 2023.
The markets are off to a good start in 2024, continuing the positive trend that began in October of last year.
When we step back and look at the entire bear market that began at the beginning of 2022, we see a two-year period of high volatility. Notice all the ups and downs during these two years.
The good news is that the drawdown (from peak to low point) of this bear market was lower than most other bear markets with the S&P down 25% at its low point in October of 2022. The bad news was that there were many mini rebounds that reversed themselves over the two years. This is a sign of volatility and instability, and this bear market was more volatile than most other bear markets.
The reality is that no one knows if the worst is over or not. No one is ready to declare victory over inflation just yet. And even though the economy keeps humming along, a recession is still a possibility.
Many market watchers are concerned about a slowdown among the “Magnificent 7” stocks that have been responsible for most of the gains in the market for the last year. Because of the massive size of these companies (Alphabet, Amazon, Apple, Nvidia, Meta, Microsoft and Tesla), any negative moves for these stocks could drag the overall market down.
Today is no different than any other time in the market. There are many things to be concerned about and there are many things to be optimistic about. It is anyone’s guess as to how all the forces will play out in the short-term, but you can be confident that in the long-term the value of indices like the S&P 500 and the Nasdaq will be much higher.
The S&P 500 is at what we call “fair market” value which means that it is not overvalued or undervalued now. This is a good thing. Our indicators suggest that the Nasdaq is only slightly overvalued at present. This simply means that the market does not need to correct in either direction from its current level based on value. Yet, we know that markets are not rational in the short term and other factors can cause big moves in either direction.
Because of the uncertainty, it is important to follow a disciplined approach to investing. It is critical to have an investing strategy that wins no matter which way the market moves. No one can predict which way things will move in the short term. But we all know that in the long term, the direction of the stock market will be higher. Stay disciplined, my friends.
Happy Investing,
Phil
Disclaimers *The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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