This very day will decide whether you’ll be rich or poor


I like this.


Welcome to Monday.

Today is actually a very big day for you, and this week is a very big week. But I’ll bet nobody else told you.

So brush your teeth, wake the kids, walk the dog and drink your coffee. And get ready for a heads-up.

If history is any guide, a couple of financial decisions you make this week are going to have an outsized influence on whether you die rich or broke.

Hardly anybody talks about this.

And so hardly any members of the public realize it.

Yes, April 15 is an important day in the financial calendar. And yes, so is the end of the tax year on Dec. 31.

But the first working day of November is also huge. Possibly the biggest of all. And yet is passes silently without any discussion at all.

Why is it so important?

For two simple, and related, reasons.

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First, because pretty much any investment gains you’re going to make on your retirement savings over the course of your life are going to come from the stock market.

And, second, because pretty much all of those gains are going to come from the stock market between Nov. 1 and April 30.

As a result, how you position your portfolio at the start of November each year has almost always ended up making a gigantic difference to your future fortune.

Those who made sure each year around this time that they had enough money in stocks ended up making big gains over time. Those who didn’t … didn’t.

Caviar or cat food? Today’s the day.

There is some dispute about the numbers, but none about the overall direction of the result.

The best estimates argue that over the long term, stocks have beaten bonds, cash and deposits by an average of about 4 to 5 percentage points a year. Compounded over time, that has amounted to an enormous difference. After 30 years, someone who invested in stocks has often ended up with three times as much money as someone who kept it all in cash and bonds.

Meanwhile, those gains have typically all come during the winter months. Peculiar, but apparently true. The most recent academic study, which has looked at stock markets around the world and went back in some cases more than 100 years, has found that winter has beaten summer pretty consistently in almost every country and almost every period. On average, the winter months have beaten the summer by a factor of about three. Or, to put it another way: During the winter half of the year, global stocks have typically beaten bonds by about 5 percentage points a year … but during the summer months, stocks have done worse than bonds by about 1 percentage point.

There are two caveats. The first is that all this assumes that history is a guide to the future. It may not be. The future may look completely different from the past. However, the research cited above does not make the usual mistake of relying on 30 or 40 years of data from one country only, namely the U.S. It is all based on a century or more’s data, from countries around the world. That’s a pretty big sample.

The second caveat is that although stocks have traditionally beaten bonds, the amount of outperformance has varied enormously based on how expensive stocks (and bonds) were at the time. Those who bought stocks when they were cheap — such as in the 1950s and 1980s — made a fortune. Those who bought them when they were expensive — such as in the 1960s, and arguably now — did less well. I remain cautious on the outlook for U.S. stocks at this point.

The question of how much any of us should have in the stock market is more complex. For those near or in retirement, or those who have imminent financial needs, the allocation rules are different than they are for those trying to accumulate savings over the long term.

But for the long-term investor, probably the most useful single piece of financial research I’ve ever encountered is from British financial consultant Andrew Smithers, who conducted a study a decade ago on behalf of a Cambridge University endowment.

Smithers, who is extremely cautious by temperament and the opposite of a stock market cheerleader, concluded after a study of financial history that a long-term investor who wants an easy life should keep 80% of their money in stocks and 20% in short-term bonds or cash.

That simple ratio, he argued, produced the best trade-off between return and risk over time.

Yes, those who were financially sophisticated could add some value to that, he said. When stocks were cheap on certain key measures, investors should allocate more than 80%, and when they were expensive, investors should allocate somewhat less. But at no point should the long-term investor hold less than 60% of the portfolio in equities, he said.

It should be added that based on his metrics, U.S. equities are very expensive right now. But many overseas markets aren’t. The investor who wants a simple life should hold a truly global equity portfolio, including European, Japanese and emerging market stocks as well as U.S. stocks.

Putting all this together: If history is any guide, you should log on to your online brokerage account today, or at least this week. And if you are trying to save for a retirement that is more than five years away, you should make sure that your portfolio is at least 60% allocated to global stocks, even if you’re nervous about the market, and more if you aren’t.

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