{"id":341270,"date":"2021-09-19T02:59:00","date_gmt":"2021-09-18T23:59:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/outside-the-box-why-this-fund-combination-is-better-than-the-sp-500\/"},"modified":"2021-09-19T02:59:00","modified_gmt":"2021-09-18T23:59:00","slug":"outside-the-box-why-this-fund-combination-is-better-than-the-sp-500","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/outside-the-box-why-this-fund-combination-is-better-than-the-sp-500\/","title":{"rendered":"#Outside the Box: Why this fund combination is better than the S&amp;P 500"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3894eada0b2\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3894eada0b2\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/outside-the-box-why-this-fund-combination-is-better-than-the-sp-500\/#The_simple_truth_People_who_set_money_aside_for_retirement_do_so_in_order_to_make_that_money_grow\" >The simple truth: People who set money aside for retirement do so in order to make that money grow<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/outside-the-box-why-this-fund-combination-is-better-than-the-sp-500\/#Paul_A_Merriman\" >Paul A. Merriman<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#Outside the Box: Why this fund combination is better than the S&amp;P 500<\/strong>&#8221;<\/p>\n<h2 class=\"article__subhead\" itemprop=\"alternativeHeadline\"><span class=\"ez-toc-section\" id=\"The_simple_truth_People_who_set_money_aside_for_retirement_do_so_in_order_to_make_that_money_grow\"><\/span>\n  The simple truth: People who set money aside for retirement do so in order to make that money grow<br \/>\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><\/p>\n<div class=\"column column--full article__content\" role=\"region\" aria-label=\"article body\">\n<div class=\"article__side\">\n<div class=\"container--sticky not-active\">\n<div id=\"cx-next\" data-nosnippet>\n              <\/div>\n<\/p><\/div>\n<\/p><\/div>\n<div id=\"js-article__body\" class=\"article__body article-wrap at16-col16 barrons-article-wrap\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0000407443\" role=\"document\">\n<div class=\"barrons-article-ad-wrapper\">\n<div data-track=\"barrons-article-ad-wrap\" class=\"barrons-article-ad sticky_item\">\n<div class=\"barrons-main-article-ad-target sticky_target body_ad\" aria-hidden=\"true\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<div data-layout=\"\n                inline\" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetArticleReader\n              \n              inline\n  article__inset\n          article__inset--type-InsetArticleReader\n              article__inset--inline\n  \"><\/p>\n<div class=\"media-object-article-reader\">\n<div class=\"audioplayer\" data-sbid=\"WP-MKTW-0000407443\" role=\"region\" aria-label=\"Listen to Article\" tabindex=\"-1\" id=\"articlereader\" data-show-title=\"false\" data-theme=\"wsj-article-reader\" data-show-header=\"false\" data-show-subscribe=\"false\" data-ads-enabled=\"true\" data-save-publication=\"false\">\n        <\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p>       \u201cI wish I had a dollar for every time I\u2019ve heard Paul Merriman say \u2018small cap value.\u2019\u201d<\/p>\n<p> One of my readers posted that recently, perhaps meaning to poke fun at my repeated reference to this asset class.<\/p>\n<div class=\"paywall\">\n       But I make no apologies for being a fan, and a champion, of a class of stocks that over the long run have outperformed almost anything else you can invest in. And as I will assert below, small-cap value can actually reduce risks for long-term investors instead of adding to it. I\u2019ll return to that topic; for now, remember the phrase \u201clong-term.\u201d<\/p>\n<p>People who set money aside for retirement do so in order to make that money grow. It\u2019s really pretty simple.<\/p>\n<p>If you are planting a tree and want it to become very tall in your lifetime, you should plant a species that grows rapidly rather than one that\u2019s slower. This is also pretty simple.<\/p>\n<p>To continue that imperfect metaphor briefly, you could think of the S&amp;P 500 index<br \/>\n        SPX,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/210599714\/realtime\" class=\"negative\">-0.91%<\/bg-quote><br \/>\n       (or the very similar U.S. Total Stock Market Index) as a species of tree that will grow three to 5 feet per year.<\/p>\n<p>Likewise, small-cap value stocks might grow five to 7 feet a year.<\/p>\n<p>If you planted those trees near each other, after 10 years you\u2019d certainly notice the difference; after 20 years the difference would be striking.<\/p>\n<p>From 1970 through 2020, the S&amp;P 500 compounded at 10.7%. Small-cap value stocks compounded at 13.5%. Over one or two years, that wouldn\u2019t make a lot of difference. But over a few decades \u2014 remember that phrase \u201clong-term\u201d \u2014 the difference would be very striking. <\/p>\n<p>To wit:<\/p>\n<div id=\"cx-membership-tile\"><\/div>\n<p>Imagine you could sock away $6,000 a year in an IRA for 40 years and retire for 30 more years. If you achieved even just an extra 0.5% long-term return, you would likely end up with $1 million more to spend in retirement and leave to your heirs.\u00a0<\/p>\n<p>Based on the long-term returns I just cited (10.7% for the S&amp;P 500 and 13.5% for small-cap value), small-cap value could get you more than five times that $1 million difference.<\/p>\n<p>The Merriman Financial Education Foundation has produced a year-by-year comparison of these two asset classes from 1970 through 2020.<\/p>\n<p><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/paulmerriman.com\/wp-content\/uploads\/2021\/09\/SCV-vs-SP500-Fine-Tuning-Table-2020.pdf\" class=\"icon none\">This table<\/a> shows you at a glance which asset class outperformed the other in each year \u2014 and by how much. For example, in 1984, the S&amp;P 500 outperformed small-cap value by 4.3 percentage points. In 2006 \u2014 and again in 2012 \u2014 small-cap value outperformed by 5.8 percentage points.<\/p>\n<p>The table also makes it clear why people who either lack a long-term perspective or who don\u2019t understand diversification are shunning small-cap value right now: In every calendar year 2017 through 2020, the S&amp;P 500 has done better. Small-cap value stocks didn\u2019t lose money in those years; they just made less.<\/p>\n<p>Fortunately, the choice between the S&amp;P 500 and small-cap value isn\u2019t an all-or-nothing decision.<\/p>\n<p>This table has columns of returns showing year-by-year results for combinations of the S&amp;P 500 and small-cap value in increments of 10 percentage points.<\/p>\n<p>For example, if you wanted most of your investments in the S&amp;P 500 but with a boost to get you twice that 0.5% extra long-term return, you could have achieved that with a combination of 70% in the S&amp;P 500 and 30% in small-cap value. That mixture had a compound return of 11.7%.<\/p>\n<p>Now let\u2019s return to the topic of risk. For statisticians, risk might look like standard deviation. But for investors, risk is about losing money.<\/p>\n<p>Here are two very valid questions: How much would you have lost in the worst 12 months if you were 100% in the S&amp;P 500? And how much if you were in the 70\/30 combination I just described?<\/p>\n<p>Neither answer is pretty. The worst 12 months of the S&amp;P 500 was a loss of 43.3%; for the 70\/30 combination, the loss was 45.1%.<\/p>\n<p>Obviously, that made the 70\/30 combo riskier mathematically.<\/p>\n<p>But I doubt that many investors who were willing to tolerate a loss of 43.3% (the S&amp;P 500) would then suddenly bail out after another 1.8 percentage points of loss from small-cap value stocks. \u00a0\u00a0<\/p>\n<p>The table also contains these tidbits of information: Of these 51 calendar years, the S&amp;P 500 did better in 24 years, by an average of 11 percentage points. Small-cap value, on the other hand, did better in 27 calendar years, by an average of 16.8 percentage points.<\/p>\n<p>Small-cap value investors should not expect their returns to be similar to the S&amp;P 500. In the past 51 years, the calendar-year returns of these two asset classes were within 5 percentage points of each other only eight times. In nine years, the difference was more than 25 percentage points.<\/p>\n<p>Personally I\u2019m always curious about how many calendar years result in a loss. Over this period, the S&amp;P 500 lost money in 10 years (average loss = 14.1%); small-cap value lost money in 12 years (average loss = 14.5%).<\/p>\n<p>But here\u2019s something I think is much more important, something that should get the attention of every long-term investor:<\/p>\n<p>An extremely risky period for equity investors in recent memory was 2000-2002, which came right after a five-year bull market in which the S&amp;P 500 achieved a compound return of 28.6%.<\/p>\n<p>Investors naturally thought this would continue.<\/p>\n<p>But in 2000, the index lost 9.1%. Then in 2001 it lost another 11.9%. As if to wake up investors who hadn\u2019t noticed, the S&amp;P 500 then lost still another 22.1% in 2002.<\/p>\n<p>In those same three years, small-cap value <strong>gained<\/strong> 21.3%. This sort of thing is how investors benefit from diversification.<\/p>\n<p>Although the future won\u2019t duplicate the past, there is virtually no disagreement from the experts that over the long term, higher returns are correlated with higher risks.<\/p>\n<p>If you\u2019re setting money aside for a month, a year or even just a few years, you should be more concerned with risk than with potential returns.<\/p>\n<p>But if you are saving for retirement, you should seek higher long-term returns, as long as you can tolerate the short-term risks that go with them.<\/p>\n<p><em>For more on this topic of the S&amp;P 500 and small-cap value, I\u2019ve <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/paulmerriman.com\/sp-500-vs-small-cap-value-new-fine-tuning-table\/\" class=\"icon none\">recorded a podcast<\/a><\/em>.<\/p>\n<p><em>Also, I\u2019m scheduled to make a presentation, \u201cTwenty Things You Should Know About Small Cap Value,\u201d at the upcoming two-day virtual <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/invest.aaii.com\/conference\/\" class=\"icon none\">American Association of Individual Investors Conference<\/a><\/em>.<\/p>\n<p><em>Richard Buck contributed to this article<\/em>.<\/p>\n<p><em>Paul Merriman and Richard Buck are the authors of\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.amazon.com\/Were-Talking-Millions-Supercharge-Retirement\/dp\/1736119605\/ref=sr_1_1?crid=3BA3IVOXW372H&amp;dchild=1&amp;keywords=we%27re+talking+millions+merriman&amp;qid=1606681437&amp;sprefix=merriman+talkin%2Caps%2C200&amp;sr=8-1\" class=\"icon none\">We\u2019re Talking Millions! 12 Simple Ways To Supercharge Your Retirement<\/a><\/em>.<\/p><\/div>\n<\/div><\/div>\n<p><\/p>\n<div class=\"byline article__byline\">\n<p>    <span>By<\/span><\/p>\n<div class=\"author mobile-scrim hasMenu\" data-scrim='{\"type\":\"author\",\"header\":\"Paul A. Merriman\",\"subhead\":\"The Wall Street Journal\",\"list\":[{\"type\":\"link\",\"icon\":\"bio\",\"url\":\"https:\/\/www.marketwatch.com\/author\/paul-a-merriman\",\"text\":\"Biography\"},{\"type\":\"link\",\"icon\":\"twitter\",\"url\":\"https:\/\/twitter.com\/SavvyInvestorPM\",\"text\":\"@SavvyInvestorPM\"},{\"type\":\"link\",\"icon\":\"email\",\"url\":\"http:\/\/www.marketwatch.com\/news\/mailto:paul@paulmerriman.com\",\"text\":\"paul@paulmerriman.com\"}]}' itemscope itemprop=\"author\" itemtype=\"http:\/\/schema.org\/Person\">\n<h4 itemprop=\"name\" aria-label=\"links to  author page\"><span class=\"ez-toc-section\" id=\"Paul_A_Merriman\"><\/span>Paul A. Merriman<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/p><\/div>\n<div class=\"mw-author-contributor\">MarketWatch Contributor Network<\/div>\n<\/div>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"http:\/\/www.marketwatch.com\/news\/story.asp?guid=%7B20C05575-04D4-B545-7637-93DFB4E51517%7D&#038;siteid=rss&#038;rss=1\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;#Outside the Box: Why this fund combination is better than the S&amp;P 500&#8221; The simple truth: People who set money aside for retirement do so in order to make that money grow \u201cI wish I had a dollar for every time I\u2019ve heard Paul Merriman say \u2018small cap value.\u2019\u201d One of my readers posted that&#8230;<\/p>\n","protected":false},"author":1,"featured_media":341271,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-341270","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/341270","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=341270"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/341270\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/341271"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=341270"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=341270"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=341270"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}