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Young Research’s Retirement Compounders: Helping You Achieve Investment Success with Comfort

January 3, 2020 By Jeremy Jones, CFA

Young Research’s Retirement Compounders were up an impressive 28% in 2019. The Dow was up 25.3% and the MSCI All-Country World Index (ACWI), Net was up 26.6%. The RCs is a global portfolio, as is the ACWI index.

Achieving Investment Success with Comfort is the Goal

While it is a bonus for the RCs to be up more than the MSCI ACWI, it isn’t the goal of the strategy. The goal of the RCs is to help investors like you achieve investment success with comfort.

Comfort doesn’t come from having a higher return than a hypothetical index of stocks selected on the basis of size.

Achieving investment success with comfort often means investing in a portfolio of stable businesses that fluctuates less and falls less in down markets than the broad-based indices.

Don’t Forget About Risk

Labeling one portfolio a winner because it has a higher return than an index and another a loser because it had a lower return than an index is ignoring the most critical consideration in investing—RISK .

You likely wouldn’t compare a 1% return on a short-term bank CD to the Dow and call your CD a loser because it has a lower return than the Dow. The more reasonable investor would evaluate the lower return of the CD in the context of it being a risk-free return.

With the RCs, our strategy is to accept lower returns during speculative runs in the stock market in return for higher relative returns during bear markets.

Young Research’s Retirement Compounder’s over the Last Decade

How have Young Research’s Retirement Compounder’s performed over a speculative run that has lasted an entire decade? The RCs have compounded at 10.5% compared to 8.8% for the MSCI ACWI. Yes, the return for the RCs is higher, but that’s not the important point.

The important point is in the four corrections of any size during the last decade, the peak to trough decline of the RCs was only 70% of the decline in the MSCI AWCI. So for every 10 percent drop in the MSCI ACWI, the RCs fell an average of 7%.

Another way to adjust for risk is with beta.  Beta is a measure of relative risk. The RCs have a beta of .73. You can interpret that number by understanding that for a 1% drop in the MSCI ACWI, the RCs can be expected to fall by 0.73%.

I won’t bore you with the specifics of the calculation, but when you take risk (or beta) into account, the RCs didn’t outperform the MSCI ACWI by 1.7% per year (10.5% -8.8%), but by almost 4% per year.

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Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #5 in CNBC's 2021 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
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