Recently, the S&P 500 has been the “King of the Hill.”
Investors have been eating Mag 7 for breakfast, lunch and dinner.
Members would ask us: “Why do we own International stocks? Why do we own Emerging Markets? Why don’t we just put everything in the S&P 500?”
Today, the data is answering that question for us.
In the investing world, trees don’t grow to the sky. Eventually, Mean Reversion kicks in. The winners rotate.
If you look at the last 12 months, the S&P 500 has done great (up 14%). But look at what has quietly taken the lead:
Emerging Markets (The Underdog) have beaten the S&P 500 by 24% over the last year.
That’s right, EM is up 38% over the last 12 months.
If you are a Financial Zen member, congratulations. You captured that growth. You didn’t have to guess. You didn’t have to time the market. You owned it automatically because of our “Stew” investment philosophy.
The “Potato Soup” Problem: If you weren’t diversified—if you just bought an S&P 500 index fund—you missed that 24% boost.
Think of the Global Stock Market like a Stew. To make a rich, nutritious stew, you need diverse ingredients:
Potatoes (S&P 500 / US Large Cap)
Carrots (Emerging Markets)
Beef (Small & Mid Cap)
Onions (International Developed)
The S&P 500 is just the Potatoes. Potatoes are great. They are a staple. But a bowl of hot water and potatoes isn’t a meal. It’s Potato Soup.
If your portfolio is 100% S&P 500, you are eating Potato Soup. You are missing the nutrients (returns) from the Carrots and the Beef when they have their moment in the sun.
This is why we build the portfolio the way we do. We don’t try to guess which ingredient will taste best next year.
Right now, the “Carrots” (Emerging Markets) are providing the flavor. Next year, it might be the “Beef” (Small Caps). We don’t care who leads, because we own them all.
So, enjoy the stew. You paid for the whole recipe, and right now, it tastes pretty good.
That’s Financial Zen.