Thank you Abdul!

The other day I drove my niece to the Shady Grove/Gaithersburg subway so she could spend a couple of days in D.C. with my daughters.  On the way back, I stopped in at 7-Eleven to get a coke and a couple of candy bars.  If I'm not in a hurry, I like to take my time and watch what people buy.  I meander along the candy aisle watching out of the corner of my eye.  I note as the bottled water, potato chips, newspapers, detergent, etc.make their way to the cash register.

Finally, I made my way to the cash register and met Abdul.  Abdul smiled and asked if I needed anything else.  As is my practice, I asked him how business was going.  He said it was good.  I asked him how many hours he had put in that day - six, with one more to go. And so we chatted.  Finally, I thanked him for the great job he is doing and explained to him that I and my clients own just about all of the companies that produce the goods he is selling and I appreciate his smile and willingness to help customers.  In fact, I explained to him that I even make money when customers swipe their credit cards.

I don't have an iPod.  I don't drive a fancy car.  Sad to say, my cell phone isn't very smart.  In fact, I made a conscious decision sometime ago to forgo such luxury (in my view) items and put money into businesses.  So, as people buy iPods, luxury SUVs, and fancy cell phones, I just hear ka-ching, ka-ching.

I own these companies by investing in a broad stock exchange traded fund.  So, as I see you tapping away on your Apple computer or arranging a vacation on line, I see you using one of my businesses. When I  turn the pages of a magazine and see every other page is an advertisement (produced by geniuses who graduated from the nation's best universities, no less!) for some drug, I reflect that all kinds of businesses that I own participate to bring people what they need and want.

I know Wall Street isn't real popular these days.  I know that investing isn't seen as a wealth-creating activity.  I do have to wonder, though, if people hear even a small whisper suggesting that maybe, just maybe, the historically unprecedented wealth creation of America is related to the fact that it has the world's most well developed capital markets system.

Today, everyone can own the wealth-creating businesses of America.  Abdul is in.

2011 Year-to-Date Performance - BlackRock Standard Diversified Portfolio

One of the most useful research pieces available for DIY investors, I believe, is the "Asset Class Returns: A 20-Year Snapshot" table produced by BlackRock and discussed at Cedar Financial Advisors.  It shows annual asset class returns, color-coded, on a ranked basis so that investors can easily see the best-performing and worst-performing sectors for each year.

Similar so-called periodic tables of investment returns (just looking at it brings back memories of high school chemistry!) are produced by others, but what makes the BlackRock table unique is its inclusion of a diversified portfolio. The diversified portfolio is an excellent benchmark for many DIY investors. It is comprised of low-cost, indexed exchange traded funds, as shown below. The 20-year annualized return of the portfolio was 8.89% for the 20-year period ended 12/31/2010.

The table shows how the return of the diversified portfolio has been much less volatile than individual sectors. The table also shows the futility of predicting sector performance - the best-performing sectors many times are the worst-performing sectors in ensuing years, Overall,  the table is an excellent starting point for the all important subject of risk management and asset allocation.

The updated performance of the components of the BlackRock Standard Diversified Portfolio over the first 6 months of calendar year 2011 is shown  in  the table:  CLICK TO ENLARGE

Source: Returns from Morningstar

The overall portfolio has achieved a return of 4.83% over the first 6 months of 2011, at an expense of approximately 0.11%.


Disclosure:  The data shown here is for educational purposes only. No recommendations are made. Individual investors should do their own research and/or consult with a professional advisor. Although data has been obtained from reliable sources, its accuracy cannot be guaranteed. I am not affiliated with BlackRock or Morningstar.