I didn’t want Wealthy Retirement readers to miss out, so today, we’re kicking off a two-part series on international real estate investing.

Part 1 is below – stay tuned for Part 2 on Saturday morning.

– James Ogletree, Senior Managing Editor

I didn’t buy a home until I was 36 years old. And that was just as the real estate bubble was inflating – so not the best timing.

But over the following seven years, I bought three real estate investments: two condo units and some vacant land in different parts of the country.

I’ve since sold the condos. We did OK on one. The other was a home run. We still own the vacant land. My wife and I (half) joke that our kids can deal with it someday.

Now that I’m a little older and (hopefully) a little wiser, I’m exploring investing in overseas real estate for the first time.

Other than some international stock index funds, nearly all of my assets are U.S.-based. I need to diversify.

It’s smart to have investments in different geographies. For most people, that will mean funds, like the ones I mentioned above. There are a variety of index funds that are focused on international markets like Europe and Asia, and there are even country-specific ETFs.

You don’t have to be a real estate economist to know that housing prices in the U.S. have gone bonkers. With mortgage rates around 6% and sky-high prices, it’s very challenging for potential homebuyers and real estate investors.

For the first time in my life, I’m looking at real estate outside the U.S.

In some places in Europe and many in Latin America, you can find beautiful new-construction homes in the $300,000s to $400,000s. If you’re willing to spend more, the home will probably be exquisite.

I love the idea of having a place that my family can use anytime for vacation, but also rent out to defray the costs when we’re not there.

So often, when we travel, it’s like the scene in the Chevy Chase movie Vacation where they pull up to the Grand Canyon, stand there for a minute, and jump in the car to the next destination. I relish the idea of getting to know a place and the people on a relaxed schedule.

Besides making sense financially, here’s what I’m looking for in foreign real estate:

• Quality health care. I want to know that if there’s an emergency or just a simple illness, there are doctors and pharmacies that can help me out.
• Good food. I don’t necessarily need fancy restaurants, but fresh food cooked well is important. I also want access to a good market. I know I won’t have Publix or Trader Joe’s, and that’s fine. Fortunately, most of these towns that cater to expats have great markets with fresh local produce.
• Not too far from the airport. Some folks may want a place far removed from civilization. I know that I don’t want to drive three or four hours after getting off an airplane. For me, that would be a disincentive to visit my place.

And perhaps most importantly, I need an expert who knows the area that can guide me. It can be a local real estate agent who has been referred by someone I trust… or a person/company that specializes in helping expats find their dream home or just an investment overseas.

When it comes to investing in a foreign country, I’m certainly not familiar with the laws and customs of each location, so having that expert who can tell you what to expect – not only in the transaction, but also after you own the property – is essential.

There’s no way I would do this without that person helping me.

I’m hopeful that within the next year or so, we will start enjoying new family traditions in another country – and getting paid when other families do the same.

The post Why I’m Considering Investing Overseas appeared first on Wealthy Retirement.

My wife and I made good choices by saving and investing hard for our kids’ educations from the moment we found out we were expecting. But we were also lucky.

The money we invested grew during long and strong bull markets.

Sure, we had to endure the Great Recession (during which we diligently continued to invest). But knowing the long-term history of the stock market – that it goes up – made it easy for me to invest in aggressive growth stocks for many years.

As my kids advanced through high school, I started easing off the gas in their college funds and became more conservative. And as the kids approached their senior years, I hit the brakes, taking much of the money out of stocks and placing it into investments that would be there for us when tuition was due.

In other words, I didn’t want to risk the funds anymore. The money had to be available at that point.

So I missed out on some gains. But I also missed out on the COVID-19 crash in 2020 and the 2022 bear market. And I was fine with all of it, because I could sleep at night knowing that the money was safe and we’d be able to pay the tuition bills when they came due.

That was how I handled the kids’ college money. As for my own money, I’m still invested in the stock market with some bonds to provide ballast and generate income. I also have some real estate investments and keep some cash on the sidelines to be able to take advantage of new opportunities. I’m not all stocks all the time like I used to be.

Back during the dot-com boom, the stock market became the national pastime. Financial journalists like Maria Bartiromo became celebrities, appearing on late-night talk shows. All anyone could talk about was stocks, stocks, stocks. And it pretty much stayed that way over the next 25 years.

It makes sense when you think about it. Stocks can make big moves in short periods of time, which makes for great media stories. You won’t see any headlines about how a bond matured today and paid investors the par value as agreed upon or how it’s the first of the month and landlords collected their rent.

But those things, along with precious metals, are important for a portfolio.

Every so often, the stock market reminds us of that, as it did earlier this year.

Bond investors weren’t affected by the S&P 500’s 12% drop in a week back in April. No matter what happens with stocks, bond investors will almost certainly get their money back at maturity, as bonds have an extremely low default rate.

Similarly, a real estate investor will get paid the rent that is due or dividends from their real estate investment trust regardless of whether the market tanks 1,000 points or 5,000 points.

I’m a stock guy. I love investing in and writing about stocks. Investing in stocks has been lucrative for me over the years. But I’m not as young as I once was, so I need to start reducing my risk here and there. There are no guarantees on Wall Street, which is why owning other assets most definitely helps me sleep at night. They continue to perform and do what they were designed to do whether stocks are surging or collapsing.

If your portfolio is too heavily weighted in stocks, strongly consider diversifying into other assets.

Good investing,

Marc

P.S. What are your best stories or tips about investing? Feel free to share them in the comments. You never know how your experience could help someone else!

The post The Stock Market Is Just One Piece of the Puzzle appeared first on Wealthy Retirement.

Nuclear energy has especially caught my eye, as it’s perhaps the only energy source that’s cheap, clean, and reliable.

Nuclear is also a rare topic that Republicans and Democrats agree on. Earlier this year, a key nuclear energy bill passed 88-2 in the Senate and 393-13 in the House of Representatives before being signed into law by President Biden.

I’m not even sure that you could get 97% of lawmakers to agree that water is wet… yet 97% of them voted in favor of the United States “[advancing] the benefits of nuclear energy.”

With that strong of an endorsement, now is a great time to target investments that are involved in the most important material for nuclear energy: uranium.

I’ve already come across a number of intriguing options. Here are three of my favorites:

1. Sprott Physical Uranium Trust (OTC: SRUUF)

The Sprott Physical Uranium Trust is the only publicly traded physical uranium fund. It owns actual physical yellowcake uranium.

It also trades at a 4% discount to its net asset value, which means you’re basically buying uranium for $0.96 on the dollar.

I expect the price of uranium to go higher over time, but even if it doesn’t, this fund gives you the potential to make money if the discount gets a little bit tighter. (In fact, the discount has already shrunk from 9% to 4% over the past three months.)

Anytime we can buy assets for a 4% discount, that’s certainly something that’s going to catch my attention.

The fund is traded over the counter under the ticker SRUUF and is also available on the Toronto Stock Exchange.

2. Global X Uranium ETF (NYSE: URA)

We actually owned this ETF in The Oxford Income Letter for a short period, but when the market took a big dive, we got stopped out.

The fund gives you exposure to a diversified group of uranium stocks, though there is a decent amount of concentration here – 26% of the portfolio is in Cameco (NYSE: CCJ), which is the biggest uranium miner in North America, and 9% is in the Sprott Physical Uranium Trust.

Half of the assets are Canadian, but you still get plenty of international diversification. The fund also owns Australian, Japanese, South African, British, and even Kazakhstani stocks, among others.

The last thing to mention here is that there’s a variable dividend – and it varies very widely. When I first recommended the ETF in The Oxford Income Letter, the previous dividend yield was fairly high. The next dividend was quite low. It really is all over the place.

If you’re interested in this play, think of the dividend as a bonus. Any dividend that you receive is great, but that’s not the main draw of this ETF. It’s not a pure income play − it’s a way to own a diversified group of uranium stocks.

3. BWX Technologies (NYSE: BWXT)

BWX Technologies is a really cool company. It supplies nuclear components and fuel to the U.S. government and is the sole manufacturer of small modular reactors for U.S. submarines and aircraft carriers. There’s nothing like a government contract for financial stability.

The company also makes radioisotopes that are used in drugs, including a blockbuster drug by Novartis.

BWX pays a very, very small dividend of less than 1%, so it’s not a true income play. But as business improves, it could certainly increase its dividend over time.

Overall, BWX is a very stable company. It’s been profitable and cash flow positive for at least a decade, and I think it’s really in a sweet spot as far as a nuclear play.

Nuclear Energy Is Blasting Off

Moving forward, I’m going to continue to look into companies that are involved in nuclear energy and uranium.

I can’t find another industry, energy-related or not, that has such widespread support. Right now, we have seemingly insatiable energy demand (which should grow exponentially), a very limited amount of supply, and a global movement to further embrace nuclear energy both in the public and in government.

I think we’re going to look back on nuclear energy 10 years from now and be surprised by just how big it got.

The post 3 Ways to Play Uranium and Nuclear Energy appeared first on Wealthy Retirement.

Since I follow the financial markets every day, you may think I regularly review my financial statements, constantly tweaking here and adjusting there.

But I actually only make big overhauls once a year – in October.

The month holds no significance other than being my birth month, which makes it a good time to review financial accounts, change passwords, and handle a variety of other housekeeping items in the modern world that need to be looked at periodically.

My family has had some big changes over the past few years. My wife and I have become empty nesters, and we’re almost at the finish line as far as paying for our kids’ education. As a result, our financial picture has shifted drastically.

So this year, I may be doing more rejiggering than normal.

Everyone should take a 100-foot view of their portfolio once a year and think about whether their investments are lined up with their goals and concerns. If they aren’t, then there will be some decisions to make.

When markets are down, some people won’t even look at their statements, as they don’t want to be reminded of how much they’ve lost or how far away they are from their goals.

This year, however, with the market at all-time highs, it should be a pleasure.

Use the strong market as an excuse to open up your statement and take a hard look at whether you need to take some risk off or add to your stock holdings. Being underinvested in stocks is just as big of a mistake as being overinvested.

Not sure how to tell if you’re underinvested or overinvested? The Oxford Club’s asset allocation model recommends the following allocations:

• 30% to U.S. stocks
• 30% to international stocks
• 10% to high-yield bonds
• 10% to investment-grade bonds
• 10% to inflation-adjusted Treasurys
• 5% to real estate investment trusts
• 5% to gold or other precious metals.

Depending on your objectives, your ability to tolerate risk, and when you’ll need the money, your allocation may be more conservative or aggressive than the model above. But it’s a pretty solid road map for many investors.

Once you’re set up with this type of portfolio, check it once a year and move assets around so you stay within those parameters. (Keep in mind that there will be tax consequences for selling investments if the portfolio is in a taxable account.)

However, that’s only the tip of the iceberg.

Below is The Oxford Club’s Wealth Pyramid. The allocation I mentioned above would be your Core Portfolio at the bottom of the pyramid, representing your largest holdings. After you have your long-term portfolio taken care of, you can expand into one or more trading strategies – depending on your risk profile and interest – to maximize your ability to accumulate more wealth and generate income.

The most important thing is to know what you have and whether your assets are allocated properly before you start employing these strategies.

I’ve mentioned the word “risk” several times. The last thing you want is to not be able to sleep at night because you’re overexposed to stocks and worried about a market downturn. But you also don’t want to end up kicking yourself because you didn’t own enough stocks in a big bull market, like the one we’re in now.

Use the recent highs to treat yourself to a peek at your portfolio so you can create the proper balance. And continue to do so every year as a birthday present to yourself.

The post The Best Way to Reduce Risk in Your Portfolio appeared first on Wealthy Retirement.

The adage “don’t put all your eggs in one basket” has become a foundational piece of advice for both novice and seasoned investors.

However, if you delve deeper into the mechanics of successful investing, you’ll see that diversification – at least the way most investors do it – is not the inviolable rule it’s cracked up to be.

Having spent decades in the trenches of Wall Street, navigating the highs and lows of markets with a perspective that often runs counter to mainstream advice, I advocate for a different approach…

Instead of grossly spreading investments to reduce risk, simply concentrate on your best ideas to maximize returns.

To some, that may seem like a crazy idea. Yet it’s been wildly successful – not just for me, but for the world’s most famous investors.

Stop Watering Down Your Wins

Diversification, by definition, involves spreading your investments across various assets. The goal is to mitigate risks associated with any single investment.

While this approach technically reduces volatility and provides a safety net during downturns, it also dilutes potential returns. Overdiversification can lead to mediocre outcomes, watering down the impact of truly outstanding investments.

In contrast, many of the world’s most successful investors have shown a penchant for concentrated investments when they have high conviction in their choices.

They understand that true wealth is created by concentrating capital in a handful of positions that have the potential for extraordinary returns.

Warren Buffett and Stanley Druckenmiller, two titans of the investment world, employ strategies that emphasize concentration over diversification.

Listen to the Oracle of Omaha

Buffett is renowned for his focused investment philosophy. He has critiqued mindless diversification, famously saying, “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”

This perspective comes from a man who has built a vast fortune. And he has built it largely through concentrated bets on companies he believes have durable competitive advantages and strong management teams.

He raised eyebrows recently when he sold off his Apple (Nasdaq: AAPL) shares – a position he held for many years. But for our purposes today, let’s remember how Buffett first took a massive stake in the company, sitting on shares as they climbed more than 700%.

Rather than spreading his investment across the technology sector, Buffett placed a significant bet on Apple because he believed in the company’s ecosystem and its ability to generate substantial cash flow.

Over the years that followed, this concentrated position paid off handsomely, contributing significantly to the performance of Buffett’s multibillion-dollar portfolio.

Why Druckenmiller Bets Big

Stanley Druckenmiller, the legendary hedge fund manager known for his macro trading prowess, took a similar path. He has often advocated for a concentrated investment strategy when high conviction aligns with favorable market conditions.

Druckenmiller’s approach is dynamic, scaling up his exposure in trades where his confidence level is high. This method was instrumental in his famous bet against the British pound in 1992, when he ran George Soros’ hedge fund.

The move famously resulted in a massive payoff, the first-ever $1 billion profit on a single trade.

Druckenmiller’s philosophy revolves around “making large bets on a small number of ideas” when he sees exceptional opportunities. It underscores a critical element in any successful investment strategy…

High conviction in one’s analysis and market understanding can justify a concentrated position, potentially leading to outsized returns.

Own the Right Things

At the core of my own investment philosophy is the belief that conviction and concentration are crucial for achieving superior returns.

High-conviction investing means doing your homework, understanding the ins and outs of every trade and every investment, and having a clear rationale for why it stands out from the crowd.

It’s about quality over quantity.

For individual investors, this means identifying your best ideas – whether they be stocks, sectors, or alternative asset classes – and allocating capital with the confidence that these choices will perform well over time.

It’s not about owning a bit of everything… it’s about owning the right things in the right proportions.

Implementing a concentrated investment strategy requires thorough research, continuous monitoring, and an unshakeable belief in your trade or investment thesis. It also requires a well-calibrated risk management framework to protect against unforeseen events.

To be clear, this approach is not for everyone. It demands deep market knowledge, a robust analytical capability, and, most importantly, the emotional discipline to stick with your convictions even in volatile markets.

That last part can be especially tough for the average investor.

While diversification is not without some merit, particularly for those who are not professionals, its status as the golden rule of investing deserves critical scrutiny.

For those equipped with deep market insights and a disciplined investment approach, concentration and conviction almost always lead to far greater rewards.

As markets evolve and brand-new opportunities arise, embracing a strategy that aligns more with the practices of the world’s top investors – and yours truly – could be your key to unlocking significant wealth.

The post Is Diversification Really as Wise as It Seems? appeared first on Wealthy Retirement.

The Oxford Club certainly adheres to this theory. The Oxford Wealth Pyramid, which we consider to be “the blueprint for financial independence,” recommends that your portfolio includes a core portfolio, “Blue Chip Outperformers,” targeted trading, and other strategies to ensure a broad mix of investments that should pay off over the long and short term.

But it’s not just about diversifying your stocks or even diversifying across asset classes. I recommend you also diversify where you keep your investments and cash. I learned the hard way about the risk of having most of my money in just one financial institution.

Shortly before the global financial crisis, I invested nearly all of my cash in what were supposed to be very short-term, very conservative notes. I expected that my cash would earn a superior interest rate and would be available to me when I needed it.

But when the economy and financial markets seized up, my broker froze those notes – and my cash along with it.

I eventually got all of my money back, but it was a long year until I did.

At the same time, my bank – one of the largest in the country – went under. Fortunately, the larger bank that rescued it handled the transition seamlessly (though they’ve been awful to deal with ever since).

After those two harrowing experiences, I vowed to never be in the same situation again. I now make sure to spread my investments and cash over various financial institutions. That way, if one goes down and my assets are locked up, I’m not scrambling trying to figure out how to pay the mortgage.

Unfortunately, as I write this, more than 100,000 banking customers who used various “fintech” apps have been locked out of their accounts for nearly two months. Fintech, short for “financial technology,” refers to technology that supports banking – often in the form of third-party apps that connect to bank or financial institution accounts.

In this case, Synapse, a company that served as a middleman between the fintech apps and the banks, went bankrupt and locked users out of their accounts. Most users probably didn’t even know Synapse was part of their transaction process.

Having multiple bank and brokerage accounts is not terribly convenient. You have to keep track of more accounts, more user IDs and more passwords. But just in case something unfortunate happens in the coming years – and let’s face it, between the economy, cyberattacks, a shaky electric grid and good old-fashioned mismanagement, it probably will – it’s a good idea to have assets in a number of different places.

It’s like having a coffee can stuffed with cash in the cupboard and a shoebox full of cash buried in the backyard. Even if someone were to steal the coffee can, you’d still have the shoebox – only in this case, the shoebox is called Fidelity, Schwab, Vanguard, etc.

The stress of having my savings locked up for a year was awful. I’ll never again allow one institution to have that much of an effect on my life.

Diversify your financial relationships just like you do your portfolio.

The post The Hidden Truth About Diversification appeared first on Wealthy Retirement.

In it, Alex explains the importance of maximizing your income to save for a comfortable retirement tomorrow.

– Rachel Gearhart, Associate Publisher

There’s one basic truism when it comes to growing your net worth: There can be no significant investment without savings.

How do you save more? By maximizing your income and living beneath your means.

Spending decisions are highly personal, of course.

No one knows more than you do about the needless waste or excess in your budget.

These decisions aren’t easy but are an essential first step in the lifelong process of investing and compounding your money.

However, you can reduce the pressure to cut costs by maximizing your income.

So let’s spend a moment talking about that…

In today’s knowledge-based economy, your earned income is generally decided by nine personalized factors:

1. Educational attainment or specialized skills
2. Chosen profession (and specialization)
3. Years of experience
4. Hours worked
5. Work ethic
6. Social skills
7. Competence and proficiency
8. Ability to cooperate with, inspire and lead your co-workers
9. Ambition to rise in the organization.

The lesson should be obvious. If you want to earn more, make yourself indispensable to someone.

Yes, some people are born with greater genetic gifts than others.

You and I were not born with the looks of Cary Grant, the athleticism of LeBron James or the intellect of Sir Isaac Newton.

Nature deals some people better hands than others.

Yet we each benefit from playing the one we’re dealt the best we can.

From an economic standpoint, that means attaining education or marketable skills, showing competence, reliability and integrity at work, and doing whatever is required to advance in an organization.

(Or seek out other employers who do offer that opportunity.)

This is about way more than money…

Life is far more enjoyable when you have challenging work that brings out the best you.

Indeed, polls show that high net worth individuals describe their greatest life satisfaction as “a feeling of earned success.”

Aside from your personal development and self-actualization, generating a higher income allows you to save more without living like a miser or passing up everyday luxuries like dining out or traveling to new and interesting places.

(Or assisting friends and family members who might need a helping hand.)

The Next Step on Your Journey to Wealth

There has rarely been a better time to get started.

The U.S. economy – a marvel of innovation, growth and opportunity – is on the cusp of a boom. Stocks are already in bull market territory.

The Labor Department reports that U.S. employers have more job openings than there are unemployed Americans.

Businesses nationwide want smart, ethical and self-motivated employees – regardless of race, gender or sexual orientation – who are willing to learn and eager to take on responsibilities.

If you’re in the workforce today, you want to fit that description.

You’ll enjoy a higher income and standard of living today – and ensure a more comfortable retirement tomorrow.

The post How to Build the Retirement of Your Dreams appeared first on Wealthy Retirement.

He brushed aside the question and said he’d taken a beating this year.

I wasn’t surprised. No one can actively manage 400 positions. It’s a completely undisciplined approach that is sure to lose money.

Look, I’m all about diversification. You should have stocks from a wide variety of industries, geographies and market caps. But if you have hundreds of stocks or options, not only is it impossible to manage, but I guarantee you have a lot of garbage stocks in there.

In An Economist Walks Into a Brothel – an interesting and very readable book on understanding risk, written by Allison Schrager – there is a chapter on poker champion Phil Hellmuth.

The “Poker Brat,” as he is called, is known for his volatile personality and explosions of rage when he loses a hand that he thinks he shouldn’t have.

However, in the book, Hellmuth discloses that he plays only about 12% of his hands, much less than the 25% to 50% of hands most players play.

It’s his discipline that keeps him a winning player.

Investors could learn a thing or two from the Poker Brat.

Many investors try to make up for lost time and get rich quick. Sometimes it works. Sometimes you pick that great stock or options play that goes through the roof and you make a lot of money. But I guarantee that for every one of those, there have been several losers. If you’re disciplined and can keep your losers small and your winners big, you can make money.

But for most investors, discipline comes in the form of picking quality investments and leaving them alone, regardless of what the market is doing, interest rates or who is in the White House.

A disciplined player like Hellmuth will mostly play very strong hands, like two aces, or two kings, or an ace and a king, etc. He’ll also play weaker hands if he is one of the last to bet (what is known as being in late position). When you’re in late position, you have more knowledge because you’ve seen what the other players have done (bet, called or folded). And, of course, every good poker player will bluff occasionally.

Here’s how you can set up your portfolio according to the same principles.

1. Play a Strong Hand

For most of your portfolio, you should own the equivalent of holding two aces. Own Perpetual Dividend Raisers. Holding two aces doesn’t guarantee you’ll win the hand and owning a quality dividend growth stock doesn’t either, but it greatly improves the odds.

A company that has a decent dividend yield and grows the dividend by a meaningful amount generates a solid return each year even without price appreciation. But Perpetual Dividend Raisers tend to outperform the market over the long term and especially in bear markets like we’re in now.

A company like Merck & Co. (NYSE: MRK) has a nearly 3% dividend yield and has raised its dividend every year for 11 years in a row. Over the past 10 years, the dividend has grown an average of nearly 6% per year.

Meanwhile, the stock has greatly outperformed the market, up 30% this year, while the S&P 500 has fallen 16%.

2. Give Yourself an Edge

Sometimes, a good poker player will play lower-quality hands, like a nine and an eight of the same suit, if they’re in late position and believe they have an edge.

That would be the equivalent of buying a stock in an industry that is poised to benefit from current conditions. For example, if energy prices rise this winter because of the war in Ukraine and OPEC refusing to cooperate on lowering prices, most oil stocks will probably do well as the entire sector climbs higher. You don’t necessarily need the top stock in the industry to make money.

3. Know When to Fold ‘Em

Then there’s the bluff, when a player has a garbage hand, like a 10 and a six, but plays it like it’s two kings. A good player will know when their opponent won’t fold a good hand and instead will have to lay down their cards to avoid losing a lot of money.

In the investing world, that could mean taking a flier on a small stock or option with an upcoming catalyst. If you’re right, you can make some great money. If you’re wrong, you need the discipline to get out quickly so a small loss doesn’t become a big one.

Don’t let a trade become an investment. Have the discipline to fold your cards if it’s not working out… so you have enough money to play another day.

Like poker players, investors who are undisciplined can get lucky once in a while, but they will lose over time. The ones who are disciplined almost always make money over the long run.

Yell and scream like Phil Hellmuth when a trade goes bad if you want, but if you make smart decisions like he does, there likely won’t be many opportunities to do so.

Good investing,

Marc

The post What You Need to Succeed in Investing appeared first on Wealthy Retirement.

We hope you enjoy it.

– Rachel Gearhart, Associate Franchise Publisher

Some folks believe the best way to invest is to put their money to work based on their expectations about the future.

If they expect the economy will boom, they own stocks.

If they think inflation will stay low, they own bonds. (Or, if they think it won’t, they own gold.)

And if they believe the world is rapidly going to hell in a handbasket – a common perception among heavy consumers of cable news and social media – they hide out in cash.

However, there’s a problem with each of these “strategies.” It’s that – to a great extent – the future is unknowable.

The economy may be humming and then along comes a bolt out of the blue – think Saddam Hussein’s invasion of Kuwait, 9/11, the collapse of Bear Stearns or the spread of the coronavirus – that upsets the market and wrecks your best-laid investment plans.

Or you may listen to political commentators who insist that one party is working to build a fascist regime or the other side is leading us to a socialist hell.

Running your portfolio on the basis of strong political convictions is a nonstarter.

We have had rip-roaring bull markets and treacherous bear markets during both Republican and Democratic administrations, with and without supporting majorities in the House and Senate.

Yes, there are wingnuts in both parties and the media makes sure their crazy comments get plenty of column space and airtime.

But cooler heads generally prevail. Or, as the old saw tells us, the dogs bark but the caravan rolls on.

The problem with running your portfolio based on your outlook for the future is you could be mistaken (even if you’re not initially).

And the folks with the strongest convictions tend to pay the biggest price.

I regularly meet folks who tell me they have all their money in gold. Or are fully margined in stocks. Or have put a substantial percentage of their liquid net worth in cryptocurrencies.

Not good.

These individuals suffer from a myopia that prevents them from asking, “What if I’m wrong?”

If you can accept two basic premises – that the future is unknowable and human beings are fallible – it’s clear what smart, disciplined investors should do.

Spread their bets.

In financial terms, it’s called asset allocation and diversification.

You asset allocate to spread your risk among different types of equities – growth and value stocks, large and small cap stocks, foreign and domestic stocks – as well as different types of fixed income investments, like high-grade bonds, high-yield bonds and inflation-adjusted Treasurys.

Personally, I would not diversify into long-term bonds right now.

Not because they won’t perform well in the months and years ahead. (Again, we can’t be sure.)

But there is only so much further that interest rates can fall.

And the slightly higher yield on long-term bonds doesn’t justify the potential downside risk if inflation and interest rates move substantially higher.

In addition to asset allocation, you can reduce your risk by diversifying within each asset class.

You should own dozens of stocks, not just a handful. And you should diversify your bond holdings as well.

You can reduce your risk further by not investing more than 4% of your portfolio in any individual stock. (That’s The Oxford Club’s position-sizing strategy.)

You can also run a 25% trailing stop behind your individual stock positions.

That way if you take the maximum loss (25%) on your maximum position size (4%), your stock portfolio will be worth only 1% less.

And if stocks make up less than 100% of your portfolio – as they should – your maximum loss is just a fraction of 1%.

That’s smart, disciplined investing.

When things go well – as they do most of the time – you’ll enjoy high returns.

And when things go off the rails – as they will occasionally – you’re protected by your asset allocation, your diversification, your position-sizing strategy and your trailing stops.

This way you earn profits during the good times and protect them during the bad.

Best of all, this strategy is available to anyone with the good sense and humility to ask one simple question: “What if I’m wrong?”

Good investing,

Alex

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But in the stock market, I believe there is…

Over time, the stock market is an easy place to generate wealth.

Anyone can do it, although shockingly few do.

Enjoying the stock market’s free lunch requires doing just two simple things…

1. Be Patient

“Free lunch” stock market wealth generation doesn’t happen quickly. It requires a lot of time.

Time is our secret weapon because it unleashes the power of compound interest.

And compound interest is so powerful that it was once described by Albert Einstein as the “eighth wonder of the world.”

It is the single most important tool for building wealth.

Amazon‘s (Nasdaq: AMZN) Jeff Bezos once sat down for a meeting with the great Warren Buffett to pick the Oracle of Omaha’s brain on investing.

Bezos said, “You’re [one of the] richest guys in the world, and it’s so simple. Why doesn’t everyone just copy you?”

Buffett just smiled and said, “Because nobody wants to get rich slow.”

At least once a week, I try to drill the concept of compound interest into my kids’ heads.

I have the chart below permanently taped to our refrigerator.

This chart shows how much wealth is created over time with compound interest if they were to invest just $5,000 now and earn an average 8% return.

(Then I show my kids what this chart looks like if the initial investment is $10,000 or even $100,000!)

Compound interest is a simple, clear path to millions for investors starting out with a modest amount of savings and a very achievable 8% annualized return.

I say “achievable” because an 8% return is less than what the S&P 500 has historically averaged over the past century.

Which brings me to the second thing that an investor has to do to claim their free lunch in the stock market…

2. Diversify

Yes, an investor might be able to generate more wealth with a concentrated portfolio.

But a concentrated portfolio removes the certainty of eventual wealth creation.

We want our free lunch to be certain…

While we know that, over long periods of  time, the stock market is going to go up at a rate of 8% to 10% per year, a concentrated portfolio offers no such guarantee.

Economist Hendrik Bessembinder performed a study of 90 years’ worth of returns (spanning from 1926 to 2015) for all U.S. stocks and compared those returns with those of one-month U.S. Treasury bills.

One-month U.S. T-bills represented the risk-free alternative to owning stock.

Over that period, Bessembinder found that the total wealth created by the stock market was $35 trillion more than what could have been earned with one-month T-bills.

Clearly, it paid massively to be invested in stocks rather than one-month T-bills.

But here is the shocking part…

Bessembinder also found that this $35 trillion of excess was generated by just 4% of all publicly traded companies.

Think about that for a second…

Just 4% of stocks generated all of the excess returns of the stock market relative to one-month T-bills.

That means, as a group, the other 96% of publicly traded stocks matched or performed worse than the return of one-month T-bills.

And Bessembinder’s study revealed that 60% – the majority – of stocks actually performed worse than one-month T-bills.

Investors who didn’t have that tiny sliver of stocks – the 4% of exceptionally performing companies – in their portfolio would have missed all of the stock market’s excess returns.

Chances are that many concentrated portfolios would not have included those big winners. Those investors would have missed the stock market’s free lunch.

As Vanguard’s John Bogle once said, “Don’t look for the needle in the haystack. Just buy the haystack!”

If you aren’t diversifying your portfolio, you are making a terrible mistake. (Note: Beware though… being too diversified can be just as damaging as not being diversified enough. So don’t get carried away.)

This stock market game isn’t terribly complicated. You just need to stop trying so hard.

Patience and diversification are really the only two things you need…

Then that free lunch is yours.

Good investing,

Jody

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