Answer: Had you invested $10,000 in 1998 and just had a return equal to the S&P 500, as of July of this year, you would’ve seen a 211% return on your money. Yes, that includes 2008 in that return! Yes, there have been new trends in investments over the past twenty years, however, the same principles good advisors give their clients remain. Those principles are to invest, stay invested, and stick to your plan even when the market is down. Those are the same today as they were 20 years ago, however, there are many new trends that have developed over the past twenty years.
One trend that has gained a lot of traction is passive investing. That is either investing in an indexed mutual fund or an Exchange Traded Fund (ETF); these passive investments are tied to a specific index like the S&P 500. When an investor purchases a passive investment, most of the money is going to the top 10 holdings of that index if it is market-cap weighted. Another trend that has developed since 1998 is the introduction of high frequency trading and quantum trading into the marketplace. This is where machines and algorithms conduct and execute trading orders in the market. It is one of the contributing factors to the extreme fluctuations you may have observed in recent years.
Factor Investing, is neither active nor passive. Factor Investing involves constructing and using an index that weights each individual stock, not by market capitalization, but by a set of preselected factors such as free cash flow, return on investment, debt level. It combines the flexibility to adjust stocks over the course of the year (an active process) with the systematic, mechanical implementation based on predefined rules (a passive investment process). With Factor Investing, a preset index like the S&P 500 could be weighted by scores based upon the selected factors. Those stocks that ranked highest would get the highest weightings.
Impact investing, involving investments made into companies, organizations and funds with the intention to generate a measurable beneficial social or environmental impact alongside a financial return. This approach is becoming more relevant in the market as part of the overall decision-making process for investors.
As you can appreciate from these examples, the landscape may look different; and the trends have certainly evolved. However, at Riverplace Capital our experience over the decades has shown us that smart investing really has not changed– the same principles remain true today as they did twenty years ago.