We know at least 4 things to be true. Maybe more

When you stop and think about all of the issues in investing today, you might raise the question, "Do we know anything?" For the philosophers on this list, that question itself is exciting in the abstract. For the rest of us, in concrete terms, the answer is an emphatic "yes."

To be a great investor, decisions have to be based on concepts that are reliably true. This sounds obvious, but there are a lot of windmills out there. Running around like Don Quixote is fun if you are the lead in the school play, but not when your retirement is on the line.

Here are four things we know, and they underpin the reasoning behind the One Day In July approach.

1. Market systems work.
They have their problems, and there is valid debate about the extent of a laissez faire vs regulated free market (or the extent of the "free" in "free market"), but the long curve of history shows that free markets are an ingenious system by which to organize a society. Fundamentally democratic, they allow people with talent but not resources to achieve breakthroughs, to disperse ideas, to make their own choices, and to lead better lives. Allocation of resources isn't perfect, but it's better than any other system ever invented. The index funds that underpin our models invest in free markets.

2. Mean reversion.
"Reversion to the mean" works wonders over time. This is the concept that over time, a market index will move upward along its linear regression trendline on a logarithmic scale. As an example, the redline here:

Chart credit.

Why is this important? There may be long periods of euphoria in one index (United States 1990's) or stagnation in another (Japan's last 20 years), but over longer periods of time, dividends included, they will revert back to their trendlines, and their trendlines often resembe each other over the long term. For example, since 1970, the United States and Europe have almost exactly matched each other in returns, dividends included:

Mean reversion is important because we know that buying into stagnated or depressed indexes delivers large gains when those indexes begin the process of returning to their normal trendline. Note that most investors don't do this: they buy high, chasing the fad. Here are the fund flows of new money going into American vs European funds. Note that as American indexes disproportionately rose over the past few years, they attracted *more* new money.

Credit for 2 graphs: CFA Institute

3. Stocks should outperform bonds.
At times, and sometimes for extended periods of time, bonds outperform stocks. For example, from October 1981 to September 2011, the S&P 500 index returned 10.8% per year, and the 20-year U.S. Treasury bonds returned 11.5% per year (note that both the beginning and ending time periods were unusual periods in this slice of data). However, from 1926 to 2010, a much longer period, equities beat bonds by 4% a year (9.7% vs 5.7%).

Because stocks are riskier than bonds, this is the premium an investor gets for owning them. If there is not extra reward, there would be no reason to take the risk, and a fundamental tenet of capitalism would be broken.

It certainly didn't break in the 20th century. $1 invested in 1900 in bonds was worth $114 in 2000, and $1 invested in stocks over the same period was worth $12,469.

4. Fear, Greed, and Envy are not going away.
Long before Shakespeare, and long before the 10th Commandment, human beings displayed fear, greed, and envy. Those emotions are not going anywhere, that we are sure of. That's important for the One Day In July investment approach, because the market swings those emotions create give us a huge advantage. The more various indexes move around in relation to each other, the better our relative performance becomes.

Return to Articles
How We Are Different
Low-fee index funds. Transparent & fiduciary financial advisors.
Local Financial Advisor
We are in your community. We are local.
Investment Management
We tailor to each client. Index funds at the core.
Index Funds
Broad market exposure, low expense.
Dan's Corner
Meaningful musings from our founder.
Fiduciary
Your best interests are our priority.
Low Fees
Our fees are among the lowest in the nation.
Financial Planner
Financial advisor optimizes your financial picture.
U.S. Treasury Bonds
Use Treasury Bonds to reduce risk.
Book Recommendations
Here are some of our favorites.
Inflation
What is inflation, and what cuases inflation.
When Should I Invest?
Life transitions = important financial decisions.
Retirement: 401k and More
Retiring? Plan the future you want.
IRA Rollovers
401k Rollovers. IRA Rollovers
Active vs. Passive Investing
We believe there is a winner in this debate.
The Investment Process
How we work: low-cost index funds, personalized attention.
Simplicity
Simplicity is the ultimate sophistication.
Investing: What to Focus On
Low-fee index funds. fee-only advisor.
Switching Financial Advisors
Can be uncomfortable, but an important step.
Advisor Recruiting
We attract top-tier talent. Not your usual firm.
Basic Investing
Let's start with Investing 101.
Understanding Your Financial Statement
Let's break it down to basics.
Taxes on Investments
What causes taxes within your investments?
Behavioral Economics
The less emotion, the better.
Timing the Market in 2020
2020 - a case study in the futility of market timing.
How Financial Firms Bill
Fee-based vs. fee-only, and lots more.
Who Supports Indexing?
Bogle, Swensen, Buffett, and others.
Transparency
One click to see our fees.
Mutual Funds vs ETFs
Clarifying the difference.
Does Stock Picking Work?
The research says no.
Countering Arguments Against Index Funds
What happens in a down market?
Annuities
Lots of fees, little clarity.
How Do Mutual Funds Work?
Invest in the basket.
How to Relieve Financial Stress
New client? anxiety is normal.
Financial Terms Glossary
Common investment terms you should know.
Firm Comparison
One Day In July vs the competition.
Retired Investing
Retiring? Let us help.
Accounts We Manage
We manage a wide range of investment account types.
High Net Worth Investors
Preserve and grow your wealth.
Investing an Inheritance
Prioritizing and planning for the future.
Frequently Asked Questions
Good questions, real answers.
Female Investors
Your voice needs to be heard. We are listening.
For the Business Owner
Choosing what's best for your business.
Environmental Investing
Carbon intensity, fossil fuels.

Locations

Vermont

Connecticut

United States

Services

Individuals

401k Plans

Institutions

Environmental

Account Types

Differentiators

Cash Flows

Low Fees

Fiduciary

Dedicated Advisor

Materials

Advisors: Join Us

Careers

Articles on Investing

About the Secure Act

Quarterly Booklets

Resources

Vermont Investment Management

Vermont Retirement Planning

Vermont Wealth Management

Vermont Financial Advisors

Investment Tools

In the Media

Shelburne, VT Financial Advisor

Frank Koster | Josh Kruk | Keith McCarthy

5247 Shelburne Rd, Suite #101

Shelburne, VT 05482

(802) 777-9768

Stowe, VT Finanical Advisor

Available for meetings in Stowe.

Peter Egolf

(802) 999-2321

Burlington, VT Financial Advisor

Hans Smith | Katie Muttitt

Nancy Westbrook | Peter Egolf

77 College Street #3A

Burlington, VT 05401

(802) 503-8280

Darien, CT Financial Advisor

Available for meetings in Darien.

Keith McCarthy

(203) 554-9466


v 2.1.4 | © One Day In July LLC. All Rights Reserved.