If your plan is to invest over a lifetime (as it should be!) then this portfolio wins hands down
The late, great boxer, Muhammad Ali, once said, “If every heavyweight boxing match had to go 100 rounds, George Chuvalo would be the greatest fighter of every generation.”
Heavyweight boxing matches, in Ali’s day, didn’t go longer than 15 rounds.
But according to Ali, Chuvalo would have beaten Jack Dempsey, Joe Louis, even the Louisville Lip himself if the fights were much longer.
That Louisville Lip, as young Ali was often called, rarely heaped praise on opponents.
Many view him as saint-like today.
But he said a lot of mean things.
Joe Frazier was, “Too ugly to be the champ.”
George Foreman was slow, so he called that man, “The mummy.”
Frazier and Foreman (both former heavyweight champions) were two of the greatest boxers of all time.
Ali beat Chuvalo twice.
But he praised the big Canadian because, after 93 professional bouts, nobody ever knocked Chuvalo off his feet.
Chuvalo, in many ways, is like a portfolio of index funds.
Neither is flashy.
But if investment durations represented a lifetime (and they do) the index fund portfolio would be a champion in any era.
Our investment lifetime has two phases.
In the first phase, we’re adding money to the markets.
In the second phase (retirement) we’re selling a sustainable amount each year.
That means, if you’re 40 years old, and you hope to live to 90, your investment duration is 50 years.
That’s a 100 round boxing match.
Unfortunately, most people make investment decisions based on how well something performed last year, or over the last ten years.
Over any 10-year period, roughly 80 percent of actively managed funds lose to their benchmark indexes.
But it’s tempting to say, “Let’s only buy from the 20 percent that did beat the market.”
Unfortunately, as the SPIVA Persistence Scorecard shows, active funds that beat their benchmarks over a designated period rarely continue their winning ways.
For example, consider the mutual funds that were among the top 25 percent of performers in 2020.
None of them were among the top 25 percent in 2022.
That’s why you shouldn’t invest in the flavour of the month or the flavour of the decade.
Invest like a boxer going 100 rounds.
I can hear what you might be thinking:
“Indexes are boring. What’s the greatest actively managed mutual fund of all time? And what if we just buy that?”
In 2019, Kiplinger’s compiled a list of the best performing mutual funds in the United States.
They examined fund performances, overall, since their respective inceptions.
According to Kiplinger’s, Fidelity’s Select Software and IT services has the best performance record of all American mutual funds.
There’s almost no way you (or anyone you know) bought this fund back in 1985.
It was a tiny fund run by an unknown team.
So let’s be sporting.
Assume you bought this fund in 2005: 18 years ago.
A $10,000 investment in Kiplinger’s “#1 mutual fund of all time” would have grown to $33,075 by January 2023.
Meanwhile, a $10,000 investment in Vanguard’s S&P 500 Index would have grown to $42,430.
Trying to beat an index over an investment lifetime would be like fighting George Chuvalo over 100 rounds.
Smart investors (and smart fighters like Muhammad Ali) wouldn’t take that chance.