March 2025 - Recently, Robert worked as a security guard at a casino. It gave him a chance to observe gamblers’ habits, especially those who habitually played the slots. One machine always drew them back time and again. It featured a bowl of precious jewels on the display. Anytime it paid off a winner, the pile of jewels on screen would be depleted. Slowly, after a time, it would refill. The players avoided the machines with small bowls of jewels and always played the ones with big bowls. Their logic was: why should I play a machine where the pot is smaller?
The reality was that none of the jewel displays had anything to do with the payouts. Slot machines work on an odds formula set by the house. Your chances of winning big at a machine showing a small bowl of jewels were no different than at a machine showing a big bowl. Perhaps working in a casino should be a prerequisite for anyone investing in the stock market. The similarities between casino odds and the stock market only go so far, but they do illustrate a point regarding the value of a long-term, managed portfolio approach versus the risk of a short-term horizon strategy. Markets and the marketplace ultimately set “long-term” odds. Individual players cannot beat those odds, but they can make lucky short-term wins.
To understand how this applies to the market there is no better illustration than the Callan Periodic Table. It was conceived to mimic the look of the periodic table of the elements that you likely remember from high school chemistry class. Here, the elements of the Earth are replaced by the major indices of the stock market with the leader every year shown in a different color.
In 2023, (the most current table) it was "Large Cap Equity” up 26.29%. In 2022, the leader was “Cash Equivalent” up 1.46% with “Large Cap Equity” down 18.11%, and in 2021 it was “Large Cap Equity” up 28.71%. Don’t get too comfortable because in 2020 it was “Small Cap Equity” up 19.96%.
Sources: Jackson.com and ishares.com/us
It is rare that the same market sector leads the market in two consecutive years. However, 2023 and 2024 are “jackpot” anomalies with “Large Cap Equity” leading both years, particularly “Large Cap Growth. ” The iShares “S&P 500 Growth (IVW)” index was up 29.84% and 31.13%, respectively, while the iShares “Russell 1000 Value (IWD) index was up 11.34% and 13.58%, respectively. In 2022, IVW and IWD were down 29.52% and 7.75%, respectively.
Let’s keep an eye on “Lucky 7” and the “Magnificent 7:” Alphabet, Amazon, Apple, META, Microsoft, Nvidia, and Tesla. Together, they have grown so rich that they currently account for approximately 48% and 35% of IVW and the “S&P 500’s”’ performance. In 2025, will they hit the “Trifecta” or “Crap out?”
Source: ishares.com/us
If you study the Callan Table, you realize that chasing recent returns might not be so different from seeking out the machine with the most jewels in the bowl. The alternative is a balanced portfolio constructed with a longer-term view and holding different types of investments. The newest, most widely read, and rational approach to a balanced portfolio is still the 1949 Benjamin Graham book, The Intelligent Investor.
In 1949, Warren Buffet was an 18-year-old. He read the book and has said many times that it set the pattern of his investing for the rest of his career — at least until now (age 94). The short-term part of the equation is hunches, news, and even presidential elections. Many people believed, and rightly so, that Tesla would be a revolutionary introducer, (especially Californians) and put their chips on the table early. They made fortunes not so much based on electric vehicle and battery production but on the swelling income from carbon credits that Tesla could sell to major oil companies. And, of course, it helps to donate to a winner.
There will always be a Tesla or a Netflix, or an Apple, or a new AI play for those lucky enough to find them. They are like the short-term rockets that fly high but can come down at the same speed. Investing in public companies with solid corporate earnings over years and colorless bonds that plod along delivering guaranteed income over their lifetime is the key to managing risk and achieving your portfolio goals. The intelligent investor needs a “balanced portfolio” leaning towards better performing Callan indices and sprinkled with magnificence.
Will investing in Crypto and gambling on its volatility become magnificent and even occupy a square on the Callan Periodic Table? (Many broker-dealers do not allow Crypto investments.) If outer space rockets are short-term up and down flights, traditional stocks and bonds are the long flight 787 that can circle the globe over and over again.
The casino draws on excitement. You can come in a pauper and hope to exit with a pile of winnings. (Just remember the IRS makes you fill out a W2-G form on slot earnings greater than $1200 before you leave the casino.)
The market also draws on excitement. We all enjoy going with hunches and believing we can spot early factors for success faster than the next guy. As long as we limit our bets to what we can afford to lose, this is ok. But the real money for most investors will be made on the professionally managed strategy of a long-term portfolio that will see us through a lifetime of ups and downs and finally be there to slide us through our retirement years.
Remember: Life is a stairway, and the bond market works best with a ladder. What else do you need to know?
Source: www.irs.gov
2025 Financial, Investment, & Insurance Planning
Please contact Aaron to schedule a meeting to review your wealth goals, investment portfolios, and insurance holdings, including life, disability, and long-term care policies. Remember that you probably purchased insurance policies to protect your investment assets both from the possibility that you can no longer work and earn income as well as potential long-term care expenses that could consume your retirement savings.