Stocks & Yogurt

Bill Parrott |

Consumers are stressed out over yogurt.

The Wall Street Journal recently published an article about declining yogurt sales - Yogurt Sales Sour as Options Proliferate. The main theme of the article is that consumers have too many choices.

According to the article “the average U.S. Supermarket carries 306 different yogurt varieties”[1] and the consumer is overwhelmed. The article added: “Some consumers say all that choice is giving them yogurt fatigue.”

Investors face the same dilemma as yogurt shoppers – too many investment choices. Morningstar’s database includes the following securities:

  • 115,000 Global Stocks
  • 27,000 U.S. Mutual Funds
  • 17,000 Global Exchange Traded Funds
  • 5,000 529 Portfolios
  • 13,000 Closed-End Funds
  • 15,000 Separately Managed Accounts
  • 208,000 Variable Annuity Subaccounts
  • 14,000 Unit Investment Trusts
  • 1.6 Million Individual Bonds

Wow! If a consumer is anxious about 300 different types of yogurts, how will they pick a few choice investments from more than 2 million securities? Information overload can cause investors to suffer from financial paralysis.

Being exposed to more choices doesn’t make things easier or better. In a famous 2000 study on jams, psychologist Sheena Iyengar and Mark Lepper published a paper on choices. The first test included 24 varieties of jam; the second sample included six. They found that the larger sample attracted more people, but less buyers. The smaller sample yielded ten times more purchases.[2]

Here’s a simple portfolio consisting of five different exchange traded funds. The funds are allocated to 60% stocks, 40% bonds and rebalanced annually. Dating back to 2003 it generated an average annual return of 7.05%. A $50,000 investment in 2003 is now worth $144,650. The best year was in 2009 with a gain of 15.89%, the worst year occurred in 2008 when it lost 20.05%.

The funds include:

  • iShares Core S&P 500 Fund – IVV
  • iShares Core S&P 600 Fund – IJR
  • iShares MSCI EAFE Fund – EFA
  • iShares US Real Estate – IYR
  • iShares Core US Aggregate Bond Fund – AGG

If five funds are too many, here’s a portfolio consisting of three Vanguard mutual funds. The funds were allocated to 60% stocks, 40% bonds and rebalanced annually. This portfolio originated in 1996 and it has generated an average annual return of 6.63%. A $30,000 investment in 1996 is now worth $130,793. 2009 was the best year for this portfolio when it jumped 25.21%. The worst year occurred in 2008 when it fell 23.3%.

The three funds include:

  • Vanguard Total Stock Market Index – VTSMX
  • Vanguard Total International Stock Market Index – VGTSX
  • Vanguard Total Bond Market Index – VBMFX

If three funds are too much, here’s one mutual fund – Dimensional Fund Advisors 60/40 Global Allocation Fund (DGSIX). Since 2003 it has generated an average annual return of 6.2%. A $10,000 investment in 2003 is now worth $25,180. Its best year was 2009 when it climbed 25.5%. Its worst year occurred in 2008 when it dropped 25.7%.

As you decide on the best investments for your portfolio, don’t make it complicated. A simple portfolio of a few, low-cost, funds is all you need. Your account will be easy to understand and follow. In addition, with fewer moving parts you’ll no longer have to watch the daily moves in the stock market.  

So, dig in and simplify your investments.

The more you have, the more you are occupied. The less you have, the more free you are. ~ Mother Teresa

April 11, 2019

Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.