A Chat With Bola Sokunbi of Clever Girl Finance


So Bro what's Well. I've got a couple of things for you. Now agree just make up a third. I can't. If you'd like, let's see the first to go as. Right so number one. The PAREDO portfolio. So you may have heard of the PARETO principle, which states twenty percent of the inputs are responsible for eighty percent. Of the outputs it's named after. Italian economist Ville Freight Oh Paredo. Who in one thousand, nine, six found that eighty percent of the land in Italy was owned by twenty percent of the population, and then he subsequently found that this applied to wealth distribution in other countries as well. It turns out also applies to stock returns. So these days we're hearing a lot about how the market is being driven by a handful of big companies. Something like the biggest five stocks and the S. and P. Five hundred are up like fifty percent for the year on average while the bottom four, hundred, ninety five are slightly down or flat depending on when you're listening to this. But this actually isn't new over the long term most stocks underperformed the market in it's a handful of outperformers that really boost returns. We cited studies on this topic before. But a recent one just came out and I thought I'd highlight it because. Well, I just think it's so interesting. So recent report published by Standard and Poor's entitled conviction confidence and courage looked at the returns of all the stocks and the S. and P. Five hundred from December thirty first one, thousand, nine, hundred, ninety, nine to December thirty, first, two, thousand, and nineteen. Over that period, there were one thousand and ten stocks in the index. The index returned to one hundred and thirty, nine percent over those twenty years but the median stock return just fifty two percent. So that's an annual return of like two percent. You would have been better off in cash. However some stocks did outperform in fact, two, hundred, sixty, seven of the one, thousand and ten. That's twenty six percent pretty close to Pareos twenty percent. But. The point of the report wasn't just that a minority of stocks drive the market's upward trajectory. The authors also pointed out that many of these performers were really volatile. Two examples were apple and Amazon. So they pointed out that if you invested a thousand dollars in each of those stocks. At one point from nineteen, ninety, nine to two, thousand, and nineteen. Thousand Dollars in apple would have dropped to two hundred and seventy five dollars. At one point your thousand dollars Amazon would have dropped to just seventy eight dollars. So you were down more than ninety percent at one point. So. The. Question of course is how many people did buy would have had the courage to hold onto those stocks? Of course, we the Motley fool did we'd like to talk about how we ve very getting. David Gardner has been holding on to Amazon since one, thousand, nine, hundred seven but I'm sure many people did sell regret it. So. there. Two lessons for me out of this study one is hold onto good companies regardless of how much they're down and number two. It's really hard to beat the index, which is why we often recommend people have at least some of their money in index funds and then item number two. It's even more extreme than Paredo estimated. So as I pointed out. His principal when looking at wealth concentration. Well, when it comes to US stocks, the ratio is more like ninety ten. This was highlighted in a recent CNBC article by Bob Bassani, he cited to Federal Reserve stats that showed the concentration of stock ownership in America. So this is based on the end of the first quarter of this year. So the data's fairly recent the top one percent. In terms of wealth, in America. Owns fifty one point, eight percent of the stocks. The next nine percent owned thirty, five point four percent. You look at the group from fifty to ninety nine percent they own twelve percent the bottom fifty percent of wealth in this country only own zero point seven percent of the stocks. So the ten percent own eighty, seven point, two percent of the stocks that is up from eighty two point, four percent in two thousand and nine other words. Stock ownership has become even more concentrated in the wealthier households. So you'll often hear these days that people say the stock market is isn't the economy and you can see why when you hear these statistics. After all on Thursday, it was announced that another million Americans filing for unemployment benefits. For the first time, it was the twenty second time in twenty three weeks that initial claims were above a million, and since this pandemic has begun, Fifty, eight, million, Americans have filed for initial jobless claims, and then this thing just makes me sad to according to yelp since March seventy, three, thousand businesses in the US listed on its website have permanently closed. So, that's all the bad news about all this in the disparity in wealth in wealth concentration. There is sort of a silver lining to this, and that is thanks that developments like commission free trades, fractional shares. It's never been easier for people to gradually invest small amounts in the stock market. So, hopefully, as the economy recovers more and more lower wealth Americans will be able to sock away a little bit. You Know Five, ten, twenty, five dollars, hundred dollars, whatever they can afford gradually an over the long term i. hope that will gradually improve their situations. And that allison is what's up. Little piece of paper coated. Meghan. Director Financial Planning for Molly. Full

Coming up next