The Portfolio Reset: Episode 1

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Merryn Somerset Webb (0:08)

John, we're going to start this episode with some number crunching.

John Stepek (0:11)

Go for it.

Paul Kearney (0:13)

All right.

Merryn Somerset Webb (0:13)

So we're going to look at what would have happened if I had taken $10,000 10 years ago. I'm going to do this in dollars just for the sake of argument, and I put it into a variety of different asset classes.

John Stepek (0:23)

Okay?

Merryn Somerset Webb (0:24)

Now, I'm going to start with global bonds. Imagine that I put $10,000 into global bonds 10 years ago. I'd have made in total over 10 years about 2.7 percent, so $266.

Pathetic.

John Stepek (0:39)

That's terrible. That's actually worse than I expected, and I'm keenly aware of how badly bonds have done over the last few years.

Merryn Somerset Webb (0:46)

Yeah. So, awful. There are things I could have put the money in which would have done a lot better. Global commercial property, I would have made about 50 percent, so now I'd have not $10,000, but $15,000.

I could have gone into a basket of commodities, in which case I would have doubled my money. I could have gone into emerging markets, the MXCF index, for example, and I would have made 145 percent, and then there is, of course, I know what you're waiting for. I know what you're waiting for. What are you waiting for, John?

John Stepek (1:13)

I'm waiting for gold.

Merryn Somerset Webb (1:15)

You're waiting for gold, and of course, gold would have done better than all of those. $10,000 would now be $32,000. So that is very good, and of course, we like gold and well done gold. But of course, it's not the winner. Something did better. I reckon all of our listeners know exactly what that was. But for the sake of argument, John, what do you think?

John Stepek (1:36)

It's US stocks or the S&P 500 to be specific.

SPEAKER_5 (1:42)

Despite the worries over tariffs and a possible AI bubble, American markets had a stellar year. And we're at new highs today.

SPEAKER_6 (1:50)

The MEX 7 is the way to go.

SPEAKER_5 (1:52)

It's going strong.

SPEAKER_7 (1:54)

You got to stay invested in the MEX 7

SPEAKER_6 (1:56)

Chart, this longer term chart going back to 2011, may suggest that there could be more gains ahead. We see a beautiful uptrend of the bull market.

John Bogle (2:02)

We're not even halfway through the month.

SPEAKER_9 (2:03)

We're already up over 4% on the S&P 500

SPEAKER_7 (2:06)

For this month?

SPEAKER_10 (2:06)

For this month alone.

Merryn Somerset Webb (2:09)

That is exactly it. If I put that same $10,000 into a super simple S&P 500 Tracker Fund, middle of August 2016, I would have $41,000, so I would have made over 310%, which is an awful lot better than 2.7%.

John Stepek (2:25)

That is a pretty extraordinary investment.

Merryn Somerset Webb (2:27)

And when you look at it, you look at that, you look at those numbers I've just given, and it totally explains why everybody invests the way they invest today. Look at that and you think to yourself, well, why would I do anything except for just buy a cheap S&P 500 Tracker and hold it and get on with living? Why pick stocks? Why pay a fund manager? Why worry about which markets achieve which are expensive?

John Stepek (2:48)

Yeah, and a lot of people have actually thought that way.

Merryn Somerset Webb (2:52)

And that is why we have seen this massive rise in passive investing. It's gone from something kind of niche to something that is actually the default. New investors come in, they buy the index, they keep the funds low, they don't fiddle with it. That's that.

John Stepek (3:04)

OK, so what's the catch?

Merryn Somerset Webb (3:07)

Maybe there isn't one. Maybe, OK, there is, there is. Those numbers tell you what worked over the last 10 years. They do not tell you what's going to work over the next 10 And there is a question to ask about that. Is the investment strategy that won the last decade necessarily the one that you want to follow for the next decade?

Welcome to our special mini-series, The Portfolio Reset, getting your money to do more. I'm Merryn Somerset Webb, editor-at-large for Bloomberg UK Money and author of the weekly Merryn Talks Money newsletter.

John Stepek (3:43)

And I'm John Stepek, senior reporter and author of The Daily Money Distilled Newsletter.

Merryn Somerset Webb (3:47)

And over three episodes, we are going to question some of the assumptions underpinning investment today. How to think about what that might mean for your own strategy. We'll start with talking about how lots of investors became convinced that passive was the smartest, perhaps even the only way to invest.