Note: All data points are taken directly from the S&P 500 Index returns as of close of business on May 25, 2023.

The investing rules I preach to my clients aren’t complicated:

1)             Buy stocks and offset risk with short term, fixed income

2)             Diversify (by size, valuation, and geography)

3)             Rebalance

4)             Behave

Of these four rules, by FAR the most complicated to follow is behave. Because human beings are not hard wired to seek out or sit in risk. It’s easier to run from pain and towards pleasure or, in the case of investing, run away from the “red” numbers on financial statements and towards the “green”. And out of the four rules, the easiest to follow is diversification. This is mostly due to the modern application of technology. It wasn’t as easy in 1946 to buy a basket of international, small cap value stocks. Even if you could,.it most likely would have been cost prohibitive.

However, as your advisor, there are times when it is my job to point out that what we might have taken for granted in the past such as, assuming the S&P 500 Index is automatically a good diversification of your money and use it as a litmus test to compare your portfolio, is not actually holding up. On its face, a basket of 500 stocks would seem to be the definition of diversification. But it’s not – at least, not at this moment in time

And this is dangerous…very dangerous. Most of our new clients who walk into our office with a good amount of money already invested assume that because they have a lot of “stuff” they are diversified enough away from risk. And often this is an unproductive mindset. The rule over the last 10 plus years is for advisors to overweight client’s money to the S&P 500 Index. This method works as long as the stocks that support the heavy returns of that Index continue to be on a run. However, what happens if just a few of those company’s falter? You assume all will be ok – there are 500 stocks in the Index, after all. But the Index isn’t operating like that anymore (at least not in recent years).

Year to date in 2023, the S&P 500 is up roughly 10 percent. Seven of those 500 stocks are up 45 percent. The other 493? They are up about 1 percent. So, what are these seven stocks? META, AMZN, MSFT, AAPL, GOOGL, NVDA and TSLA. Those are the companies responsible for the lion’s share of the YTD return in the S&P 500. In fact, the top 20 stocks in the Index account for 29 percent of the weight yet, they are responsible for 95 percent of the return!

Some are calling these stocks the “AI Stocks”. Others believe the bull run can continue forever.  And there are those who think we are bound for imminent doom. Regardless of how this plays out over time, we shouldn’t base your investment portfolio or entire balance sheet and financial security on only seven  stocks!

When we review your balance sheet and look at future projections of your accumulation or distribution strategy, do we ever plug in 45 percent rates of return? Doubtful. You  most likely have seen me plug in numbers between 4-8 percent. That’s not because I think you’ll only get that much in return, but because I know we need to build a plan that works, not a plan that is built on hope, …or on seven stocks.

So, what is the biggest danger to you this year? It’s not that these seven stocks may falter (we don’t have an overweighted position in the S&P 500 – not now and not ever, because we diversify globally). Your biggest danger is in comparison.  As they say, comparison is the thief of joy.It can also be the thief of your portfolio and the future of your family’s financial goals.

Pay no attention to a single stock, index, or geographical location – stay focused on these four rules instead:

1)             Own equities and offset risk with short-term fixed income

2)             Diversify (by size, valuation, and geography)

3)             Rebalance

4)             BEHAVE

As always, if you have any questions, thoughts, or concerns, reach out and let me know. Keeping you aligned with your investment plan is the most important job I have as it relates to your portfolio.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 5280 CARROLL CANYON ROAD, SUITE 300, SAN DIEGO CA, 92121, 619-6846400. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WESTPAC WEALTH PARTNERS LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. CA Insurance License #0L49687. | | Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. | 2023-158307 Exp. 07/25 | Georgia Independent Operators Association (GIOA) is not an affiliate or subsidiary of PAS or Guardian.

Past performance is not a guarantee of future results. Indices are unmanaged and one cannot invest directly in an index. Diversification does not guarantee profit or protect against market loss.

All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit and inflation risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in securities of smaller companies tends to be more volatile and less liquid than securities of larger companies. Investing in foreign securities may involve heightened risk including currency fluctuations, less liquid trading markets, greater price volatility, political and economic instability, less publicly available information and changes in tax or currency laws. Such risks are enhanced in emerging markets. References to specific securities, asset classes, or portfolio models are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security.