I’m doing something different with this edition of “Over the Weekend.” Instead of highlighting multiple data points and stories from last week, I’m going to focus on one.
Specifically, I want to debunk conventional wisdom that goes something like this:
“Stocks are the top-performing asset class. Therefore, all you have to do is buy an S&P 500 index fund and hang on.”
But to achieve superior gains, neither of those are true…at least not all the time.
Before I dive into this topic, please take 60 seconds to do these 2 things:
Share The Antagonist with others. When your referrals subscribe, you’ll receive credits toward a free premium membership.
Hit the heart button at the bottom of this post. This helps improve The Antagonist’s visibility on Substack.
Stocks are the top-performing asset? It’s not that simple.
The visualization below shows the growth of $100 by asset class. At first glance, it appears that stocks are clearly the best place to invest your money. Since 1970, the S&P 500 crushed the returns of corporate bonds, gold, treasury bonds, real estate, and cash.
Does this mean that you should just invest in an S&P 500 index fund and ignore everything else?
Antagonist’s take
As you probably guessed, the answer is not nearly that simple.
Stocks are NOT the best-performing asset class in an absolute sense, meaning they are not ALWAYS better than everything else.
For proof, check out this table, which breaks down asset class returns by decade:
Sure, if you invested $100 in 1970 and then ignored it for 53 years, you’d be sitting on over $22k.
Not bad. But you could’ve done MUCH better.
How?
By rotating asset classes.
Look at the 1980 row. If you kept your $100 in gold throughout the 1970s, your investment would’ve grown to $1,578. That’s nearly 7x the performance you would’ve gotten with stocks.
But over the next decade, gold got crushed. (If you held through the 1980s, you would’ve still been ahead of stocks, however).
There was no reason to keep holding onto gold at that point, however. You could’ve rotated into stocks—or even corporate bonds—and generated huge profits.
Buy-and-hold is NOT the answer
You can follow this same, asset-rotation idea through each decade.
In the 2000s, gold was your best option again. Your investment would have more than quadrupled! Meanwhile, the S&P 500 barely moved.
Of course, from 2010 to 2023, stocks were easily the best performer, topping the other asset classes several times over.
My point is this: blindly buying and holding an S&P 500 index fund, like so many people advocate today, will cause you to miss out on massive profits.
Keep in mind that the S&P 500 doesn’t always rise either. But as your portfolio shrinks, do you really have to just sit there in the name of “buy and hold”?
No!
As I’ve written many times, you should ride stocks (or any asset) while they’re hot. When they cool off, rotate into other asset classes.
This simple rotational strategy lets you continue to generate profits (or at least reduce your losses) even when stocks decline.
Timing is vital
When you start investing is also critical. It’s easy to look back 5-plus decades and conclude, “See! Stocks are the best!”
But that’s not how the real world works.
Did you start investing in 1970? If not, the returns in the above visual are not applicable to you.
What if you started investing in stocks in the late 1990s? When the tech bubble burst a few years later, clinging to a buy-and-hold strategy would’ve caused a massive drawdown in your portfolio.
Of course, if you began in 2010, right after the financial crisis, your stocks would have soared for the next decade.
It may seem like I’m bashing stocks. I’m not. I love stocks. They make up a large portion of my current portfolio.
I’m simply saying that stocks are not always your best investment choice.
That’s crucial to understand because the advice of so many pundits today is to blindly buy and hold an S&P 500 index fund. This is especially true if you’re in your 20s or 30s. These “experts” will tell you that since you’re young, you have plenty of time to make up your losses when stocks fall.
That line of thinking, however, assumes large portfolio drawdowns are an inevitable component of investing.
That’s not true!
You can avoid those drawdowns by rotating asset classes. Even better, you can achieve better gains than stocks even if the market is rising (see my earlier comments about gold).
To clarify, stock investing is a long-term strategy. When you own a great business, you should hold it for years, if not decades (as long as it’s still a great business).
But that doesn’t mean you should do that with all your money.
When other asset classes are out-performing stocks, don’t blindly keep your entire portfolio in an S&P 500 index fund. Move at least some of your money so that you can benefit from the growth in gold, commodities, bonds, real estate, etc.
Simple rotational strategies
Rotating asset classes may seem complicated, but it’s actually quite simple. I would even go so far as to say it’s necessary to long-term success.
As I wrote in last week’s OTW, how you allocate your money and how you manage risk have a much greater impact on your results than your positions themselves.
If you’re a long-time reader of The Antagonist, you’re familiar with two simple asset-rotation strategies that I use on a regular basis.
The first one is the Papa Bear portfolio. It’s simple, free, and takes just 10 minutes per month.
For a more hands-on approach—and a chance for much bigger gains—consider using the Antagonist Blend and Challenge portfolios in tandem.
This strategy helps you determine which asset classes to overweight within your portfolio and how to super-charge your gains with short-term trades.
You can get access to both portfolios with a free trial of a premium membership. Cancel any time.
Last thing...
To limit the length of Over the Weekend to 5 minutes, I can only highlight a few stories.
If you’d like to receive more summaries and links to important events and data,
Follow my personal X (Twitter) account and The Antagonist.
Thank you for reading, and have a great weekend!
Jason Milton
X (formerly Twitter) | LinkedIn | Facebook | Instagram | Medium
P.S. If you enjoyed this edition of Over the Weekend, please hit the heart button at the bottom of this message and share this post with others!
Disclaimer: The “Antagonist Stocks and Options Research” newsletter (hereafter: The Antagonist) is an online financial literacy resource. All materials from The Antagonist are intended for informational and educational purposes only. They are not, nor are they intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person.
By subscribing to this newsletter, you acknowledge that you understand and agree to these terms and conditions. Read the full disclaimer here.