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I expect more volatility heading into the hugely anticipated November election, and then a rally once the dust settles.
That’s my working “script,” but of course anything can happen. And while I recommended using any selloff as an opportunity to buy world-class disruptors like the ones we own in Disruption Investor... I understand individual stock picking is not for everyone. It can be hard when emotions get involved.
Which is why today, I’m bringing in RiskHedge publisher Dan Steinhart to share more on a simple investing strategy he uses that takes all the emotion out of it... and helps you come out on top no matter which way the markets turn.
Stephen McBride: Dan, your Cornerstone Club is completely different from anything else we publish.
It’s almost an “anti-newsletter.” You don’t recommend stocks.
Yet you say, “The world’s worst stock picker can retire rich by following it.”
Can you explain?
Dan Steinhart: I’m convinced most people are hardwired to be terrible investors. Even very smart people who are extremely successful in other walks of life—doctors, CEOs, PhDs—are often bad at investing.
Think about this: If you put just $1,000 into the S&P 500 in 1950, you’d have $2.2 million today. I’m not saying $1,000 a year. By investing $1,000 in the market one time and leaving it alone, your money grew to $2.2 million.
Almost anyone can do that. Yet most people do not retire comfortably, let alone rich.
Stephen: The average 60-year-old has about $400,000. Forbes says you need $1.7 million to retire.
Dan: Right. Some people fail to save and invest. We can’t help them.
But most Americans work hard, save, and try to invest right.
Simply put, they’re focused on the wrong thing. They’re focused on picking stocks.
They’re so concerned with choosing between Tesla (TSLA), Amazon (AMZN), or Berkshire Hathaway (BRK.B), they’re missing what REALLY matters.
It’s 1,000X more important to focus on how much of which different types of investments you own. Asset allocation.
A study from the Financial Analysts Journal concluded that 94% of the variation in a portfolio’s returns come from asset allocation. Stock picking and market timing, together, accounted for just 6%.
In other words, asset allocation is the most important driver of most people’s investing returns.
That’s not to say individual stock picking can’t work. But it’s hard on your own. The average investor, according to a comprehensive study done by JPMorgan, makes just 3.6% over the long term.
Your Disruption Investor portfolio is beating the market nicely this year, Stephen, but you have a strategy that works: picking world-class disruptors profiting from disruptive megatrends. You and Chris Wood have over 30 years’ worth of combined experience doing this.
But most people go it alone, hence the poor results.
Stephen: Right. I know the Cornerstone system starts from a proven principle: To have the most robust portfolio, you should own a mix of quality financial assets from all over planet Earth. Can you share more on that?
Dan: So “mix” means you don’t just own stocks. You must own all the major asset classes: stocks, bonds, commodities, and real estate.
“All over planet Earth” means you don’t just own investments from your home country. Americans should own stocks from emerging markets and Europe. They should own foreign bonds. They should own a mix of quality assets from everywhere.
BUT—and this is where many folks go wrong—you don’t need to own everything all the time. There’s a time for every investment.
Stephen: And Cornerstone puts you into the right investments at the right time.
Dan: Exactly. There’s a time when it’s profitable to own emerging market stocks… like April 2005 to October 2007 when they soared 156%. There’s a time NOT to own emerging market stocks… like November 2007 to November 2008 when they fell 69%.
The Cornerstone system sorts this out for you. It tells you what to invest in, and when. If a major asset class is “working” somewhere in the world (prices are going up), Cornerstone makes sure you own it. And it ensures you don’t own falling or underperforming assets.
Stephen: How does Cornerstone perform during major market crashes?
Dan: Let’s look at the 2008 crisis. The S&P 500 crashed as much as 57% and didn’t recover until 2013. Cornerstone, on the other hand, would have fully recovered its small losses in just nine months before powering ahead and never looking back.
Or the “the lost decade”—the period from 2000‒2013, which really lasted 12.5 years. Cornerstone truly shined. It would have soared 300% during that time, while the S&P 500 produced zero returns.
Stephen: How would you say Cornerstone fits in with Disruption Investor and the rest of our advisories?
Dan: Cornerstone is a strategy for part of your core portfolio. If RiskHedge is a tree—Cornerstone is the roots and the trunk. Our other services are the branches.
I recommend using Cornerstone to manage part of your core portfolio and then building around it with our other, more specialized, higher-upside ideas like cryptos, microcaps, tech disruptors, and trading.
Stephen: And for those who want to know the 13 asset classes within Cornerstone and their respective ETFs, what are they?
Dan: Sure... these 13 sectors represent the “world” of investments available to everyone:
1. Big US value stocks (IWD)
2. Small US value stocks (IWN)
3. US momentum stocks (MTUM)
4. US small-cap stocks (IWM)
5. Foreign developed market stocks (VEA)
6. Foreign emerging market stocks (VWO)
7. US 7–10 year gov’t bonds (IEF)
8. US 20+-year gov’t bonds (TLT)
9. US corporate bonds (LQD)
10. Foreign gov’t bonds (BNDX)
11. Real estate (represented by REITs – VNQ)
12. Commodities (DBC)
13. Gold (GLD)
You can trade in and out of these ETFs fee-free in your favorite low-cost brokerage account... including your IRA or 401(k).
Stephen: And finally, what’s Cornerstone saying today?
Dan: A mix of US stocks, international stocks, gold, and real estate.
As you’ve mentioned, September is historically the worst month of the year for stocks. October isn’t much better; it’s historically the most volatile month. Combine that with the looming election, and it feels like the calm before the storm.
I told members to keep calm, follow Cornerstone’s rules, and don’t let emotion creep into your investing decisions.
Stephen: Thanks, Dan.
PS: In my free letter, The Jolt, I bring on guest speakers and interview industry experts to uncover the best ways for readers to grow and protect their wealth. If you enjoyed my chat with Dan, consider signing up today for more in-depth market analysis from today’s top minds.
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