That’s a pretty interesting question, and I think the answer is yes.
By “supercharge” I mean adding auxiliary power to something that’s already strong.
Let me tell you two things that it’s not.
First, supercharging the market is not market timing. When you time the market, you’re trying to figure out the best times to buy and sell in order to take advantage of the market’s inevitable ups and downs.
Timing is a notoriously difficult challenge. Its successes and failures depend heavily on luck, very often leaving investors fed up — and without any favorable options except eating crow and accepting losses. That’s not good financially — and certainly not good psychologically.
Second, supercharging does not involve picking stocks or a hot manager.
On the surface, picking “the best stocks” to own seems like a great idea. But in reality, it leads to risky decisions and usually leaves investors with more losses than gains, again eroding their finances and their psyches.
The same applies to finding a “hot” manager, who may have attained fame by using market timing and/or stock picking. No manager, however hot, is immune from the perils of those approaches.
So what is supercharging? I won’t pretend to understand the details of how a supercharger works in a muscle car. Let’s just say it lets the car do more work and increase its output. Can you do that with the stock market? I think so.
Supercharging the market, like supercharging a vehicle, involves small changes that are likely to have large payoffs. I’m talking about the combination of changes anyone can make, combined with lots of time.
Over a lifetime of investing, getting an extra 0.5% return can work wonders. If you save $5,000 a year for 40 years, then retire and live another 30 years, an extra 0.5% return should mean at least $1 million more you can withdraw in retirement and leave to your heirs.
How do you get an extra 05%? Let me count (some of) the ways. Reduce your expenses by buying index funds or ETFs. Reduce your taxes by investing in an IRA. Diversify. Stop trying to time the market. Tilt your equity portfolio toward value stocks and small-cap stocks.
Here’s how that last point could work for a young person who can set aside $1,000 a year (less than $20 a week) for retirement in an IRA or a 401(k) or similar retirement plan.
Every time you add new money, you put 90% of it into a tried-and-true vehicle like a target date retirement fund. In a single package, that fund will insure that you automatically do most of the things good investors should do.
The other 10% of each investment goes into a “booster” fund that invests in assets with a long history of outperforming the overall market. This adds a bit of risk, but only to 10% of your investments.
In a new book, Richard Buck and I recommend using a small-cap value fund as this booster, and the results can be astounding.
Imagine two possible scenarios for this young investor. The results are based on average 40-year returns from 1928 through 2019.
One (non-supercharged): You invest your full $1,000 every year in the S&P 500 index
SPX,
which gives you an assumed long-term return of 11%. At the end of 40 years your account is worth $581,826. That’s a pretty nice result from the $40,000 you put in.
Two (supercharged): You put 90% of your money into the S&P 500 and the other 10% into small-cap value stocks. This asset class had an average 40-year return of 16.2% from 1928 through 2019. At the end of 40 years, without any rebalancing, you have $759,670 — about 30% more money.
That big difference, by the way, is more than four times the number of dollars that you initially invested over the years — all from changing how you invested $100 a year. That’s what I call supercharging the market.
Obviously, the dollar figures can be much greater for investors who save more.
The hard part of this strategy, like that of any investment strategy, is saving money in the first place. In more than half a century of working with investors, I’ve learned that saving is the biggest factor that separates who will have enough to retire comfortably and who will struggle.
Ben Franklin once said: “An investment in knowledge pays the best interest.”
You can learn more in this podcast entitled “Supercharge Your Portfolio and Earn Millions More,” in which Richard Buck and I are interviewed about our new book. Among the highlights: Rich tells Doc G what he thinks is the best market-timing advice he ever got from me.
Paul Merriman and Richard Buck are the authors of “We’re Talking Millions! 12 Simple Ways To Supercharge Your Retirement.”
Source : MTV
