Are You in It To Win It?

Happy belated New Year, 2025. Needless to say, it has been a whirlwind start to the year. I hope yours has been as fruitful as mine. As always, I spend a lot of my time reading all of the different pundits’ and economists’ thoughts on the year. Some of them are preaching Armageddon and warn us to expect the worst year in modern times. Many of them are so deep in financial theory, it makes my head hurt. Then again, the majority of them are talking about another great year for investors.

For what it’s worth, I’m an optimist and see a continued bull market scenario. Clark Capital is one of the money managers that I utilize for my clients’ investment portfolios. In their 2025 Market Outlook Commentary, they stated the following, in summary:

We believe that 2025 will see a continuation of the cyclical bull market by strong fundamentals, and a market with many tailwinds.

Looking both backwards and forwards, the S&P 500 – one of industry benchmarks for investment comparisons – recorded consecutive year gains in 2023 & 2024 of 20% or better. This doesn’t happen very often. To give you a better perspective, from 10/12/2022 to 12/31/2024, the total return on this US stock index was 70.06%. A dollar invested in October 2022 was worth $1.70 at the end of 2024.

However, there’s another statistic that is worth mentioning, and it’s the catalyst of this blog. The Investment Company Institute, which is leading association representing regulated investment funds, reports that the amount of total assets in money market funds reached a record $6.8 trillion, up from $4.73 trillion from year end 2022. To put this in perspective, that’s $6,800,000,000,000. That’s a lot of money on the sidelines, not participating in this bull market.

So, my questions are simple: If you are focused on retiring in the next 5, 10, or 15 years, is your 401(k) allocation reflect playing it safe and earning 1.0 % to 3.5% in a money market fund? Does your current allocation of mutual funds align with your tolerance for volatility, or is it basically a “junk drawer” of different funds that have no rhyme or reason whatsoever? Maybe one evening, you got emotional and started making changes to the funds that made you feel better after you did it…only to set yourself back several years by missing that bull market run of the last 24-30 months.

If you own my book “Castles & Moats,” Chapter 21 speaks to Modern Portfolio Theory, which won a 1990 Nobel Prize in Economics. The study stated that 91.5% of an investor’s success was attributed to how their money was diversified over a broad array of asset classes based on their time frame and risk tolerance. Let’s repeat that: there’s a 91.5% rate of investor success by following these simple guidelines. Oh, by the way, if you use this simple principle by default, you will always be “in it to win it!”

If you’ve gotten this far, hopefully you see my rationale. Money market funds are useful for short term needs and quick access to cash. To me, they don’t make a lot of sense for people investing for retirement. Yes, 2022 was a horrible year for us all, and it created a lot of fear in the minds of these people. But in order to earn that total return of 70.06% mentioned earlier, you had to work through those 12 months of frustration to be “in it to win it.”

My call to action is simple: if you’re an active participant in your company’s 401(k) plan, go online and look for the risk tolerance questionnaire. Upon completing, it will give you a score, which equates to matching your money to your emotions. You will see that you’re either a conservative, moderate, or growth investor. There’s a strong possibility of a disconnect as I see it all the time, when I take prospective clients through this exercise. Then you can make the necessary changes to your allocation, and by default, you will be “in it to win it.”

If you want to learn more about Modern Portfolio Theory and need my advice, contact me and we can begin the conversation to see if we’re a fit to work together to help you reach your goals, dreams, and wants. My role as a financial advisor, a “professional explainer,” and “financial psychologist” is to help you overcome all of the negative thoughts and emotions so that you will always be certain that you’re “in it to win it.”

As always, thanks for reading, and for your continual comments as we see each other going forward in 2025. All is greatly appreciated!

All my best!

Brian

**Examples are intended for illustrative purposes only and may be not indicative of your situation. Individual results may vary.