Looking Back
/Years ago, I was at a check-up with my doctor and lamented about growing old (if I remember correctly, I had recently turned 30. LOL!). With a stern look on her face, my doctor said, “It beats the alternative.” Her comment gave me perspective and has stayed with me all these years. Since then, I have tried to be grateful for each year I get.
On a professional level, the years I’ve been blessed with have given me experience as an investor and investment advisor. Recently, I kept thinking back to what happened in the late 90s and early 2000s. For those of you that remember, it was an investment period with above-average stock returns driven by dot-com companies. I hadn’t been working for Grace Worley very long, but I remember she was getting calls from concerned clients who were frustrated with getting “only” 15% returns on their portfolio. Their friends were making more, and they wanted to know why their portfolio wasn’t doing as well. Grace would explain diversification and steer clients away from loading up on the dot-com company stocks their friends were buying. As we know, she was right, and diversification is a great long-term investment strategy.
By no means is today’s market a repeat of the dot-com era where companies that had little or no earnings were appreciating at unbelievable rates, culminating in the bursting of the tech bubble. However, we are seeing market concentration at a level above that of the early 2000s. In fact, according to Capital Group’s January 11, 2024 article titled Five Keys to Investing in 2024 by Lawrence Kymisis, Oliver V. Edmonds and Mike Gitlin, “As of December 2023, the 10 largest companies in the S&P 500 accounted for 30.9% of the market capitalization compared with a 26.6% weighting for the 10 largest companies in March 2000.” To continue the comparison, most of today’s 10 largest companies are in the technology industry.
Although it may be tempting to chase returns, let’s not forget that diversification is a time-tested strategy meant to smooth out our investment ride over the years. In the end, that should help us stay the course when areas of the market experience turbulence or corrections. Let’s use our experience to continue to be better investors!
- Juli Erhart-Graves, CFP®, Worley Erhart-Graves Financial Advisors
