By Ian Ardill
The “Ten Titans,” which includes Nvidia, Microsoft, Apple, Amazon, Alphabet, Meta, Broadcom, Tesla, Oracle, and Netflix, now make up over 39% of the S&P 500, an index which can be viewed as a proxy for US markets overall. And the technology sector alone makes up 34% of the index.
The public equities markets, in other words, are quite highly concentrated. This means they are vulnerable to the poor performance of a small number of companies. Which might sound like a suggestion that investors should be skittish about staying invested.
Which is the exact opposite of the message I want to relay.
Staying invested is crucial because if concentrated markets experience a downturn, our human nature can tell us that we are unacceptably vulnerable – and therefore we must sell. In many cases, however, to do so would be to make an emotional, aka behavioural, investing mistake.
This is also what is called “trying to time the market,” and I have three main things to say about it:
#1: Trying to time the market is very risky, and we advise against it. (S&P 500 Average Returns and Historical Performance)
#2: Being out of the market for just a few days – as few as 10-20 days in an entire decade – can greatly diminish returns. (“Staying the course does not mean ‘set it and forget it’”)
#3: US equities have delivered consistent real growth over the long term, averaging roughly 6.5–7% per year after inflation – despite wars, recessions, political upheaval, and market crashes. (S&P 500 Average Returns and Historical Performance)
To put it another way, the cost of mistiming is greater than the cost of volatility. And as we know from the 24-hour news cycle, we live in an increasingly volatile world.
Consider a Vanguard study, in which a hypothetical $100,000 investment was made in the S&P 500 in 1988. By 2024:
-Staying fully invested would have grown it to about $4.9 million.
-Missing just the 10 best days would reduce that to ~$2.3 million.
-Missing the 20 best days cuts it further to ~$1.4 million.
-Missing the 30 best days cuts it further to around ~$0.9 million.
That study also shows that the worst and best days are often clustered close together – making market timing even more difficult.
Another vital takeaway is that advice, from a human wealth advisor, is valuable in helping avoid emotional investing mistakes. I have said before in this newsletter that I actually love “robo-advisor” investing platforms like Wealthsimple, because they make that case for me.
This is because robo-advisors help people realize that managing their own investments is riskier and more complicated than they think. People who’ve tried Wealthsimple and their competitors regularly come to me and ask for help with their portfolio, acknowledging something I fundamentally believe: no one can be an expert at everything.
Check out the video for some additional perspective.
Have any questions at all? Want to discuss further, or tell us of someone you know, who would benefit from our disciplined approach? Reach out anytime to me, or another one of our humans.
Ian Ardill, B.A., M.T.S.
Wealth Advisor
CEO, Ardill Group
Direct: 1 905 769 2004
Office: 1 905 907 7000
ian@ardillgroup.com
