Inclusivest Investing Strategy

GROWTH: Built for the high growth market.

SAFETY: Designed for the corresponding volatility.

At Inclusivest, we believe in 2 premises.

The 1st, believed in by most investment strategists, is “The stock market generally grows.” What this means is that over a majority of years and periods of time, if you invest in the market and stay invested (not pulling out when the market takes a downturn) you will make money.  We believe this premise and this year is a good example. Year-to-Date if you invested in the S&P 500, you would have made a whopping 24% return (as of 10/26).

S&P 500 - 2021 YTD (through 10/26)
S&P 500 - 2020 Market Crash

But Occasionally the Stock Market Will Crash.

This is the second premise. Almost all investment strategists believe in this premise, but they vary in their strategy to account for it; the treatment of this premise is the true differentiator of Inclusivest. A good example of this premise happened just last year. From February 19th to March 23rd, the S&P 500 lost 34% of its value. Whether you were saving for a house or a Nintendo Switch, losing 34% of your portfolio is quite a hit. Since 1950, the market has “corrected” roughly once every 2 years (dipping about 10%) and “crashed” roughly once every 8 years (crashing more than 20%)

What to do with Premise 2...

Here is where Inclusivest offers an alternative to traditional investing strategies. Most traditional investment companies have 2 strategies for what to do when it comes to knowing that a crash could happen at unpredictable times.

The 1st traditional approach is “Ride it Out”. Keep your money where it is, ride the crash and based on premise #1 your portfolio value should eventually come back to where it was and keep growing. The thought is that since you can’t guess when a crash will happen nor when a big rebound will take place (see this CNBC article), the best strategy is to keep your money invested. Those who take their money out when they think the market is going to keep crashing often lose out on some of the largest growth days and actually end up making less money than if they stayed invested. 

The problem with the “ride it out” strategy is that not everyone has the financial flexibility to weather that amount of uncertainty. In 2020, it took until August 18 for the SPY 500 to recover its value to the February 19th value. That is 6 months where investors needed to “ride it out” in the negative before breaking even again.

(Teaser – with Inclusivest, the peak loss in 2020 would have been 8% and would have only taken until March 6th to fully recover the value of the portfolio)*.

2020 Crash and 6 Month Recovery
BIGPX (blue) vs S&PY 500 (black) Jan 2020 - Oct 2021

The 2nd traditional approach is “Stock / Bond Splits”. One of the most prominent offerings by portfolio-based management companies is to offer a portfolio with a stock/bond split. This is where they will put a percentage of your money in stocks (like the S&P 500) and a percentage of your money in bonds (like a gold or treasury bond). The reason for this is that these are considered less volatile stocks and generally do not decrease value as fast in a market crash

The problem is that hedging in this manner ultimately means that over the long haul, you do not have as great of growth potential as a portfolio of stocks. The formula is LESS RISK = LESS GROWTH.

For an example, the a popular 60/40 stock bond portfolio, BIGPX managed by BlackRock did an admirable job of reducing portfolio risk during the 2020 crash and only lost 22% (compare to the SPY loss of 34%). However, the cost of this hedge is measured in potential lost. It still took the portfolio 5 months to recover value to its February highs and even more importantly over the long haul those who use this strategy give up long term potential gains. Over the last 5 years, BIGPX has only grown 42% compared with the market (S&P 500) gaining 116% in the same time.

A Better Option

At Inclusivest we give investors a better option. Instead of needing to “ride it out” or lose gains by hedging with bonds, Inclusivest puts over 90% of investors money into stocks and hedges a small percent (roughly 4%) into tail-risk hedges against the market. 
This approach:

– Protects investors from Crashes (and makes money doing it). 
In the 2020 crash, Inclusivest would have only lost 8% and regained it within the month due to our tail-risk hedges. Then our portfolio hedge would have really paid off. Our hedges make money during volatility and by the end of July the returns would have been nearly 70% while traditional portfolios were still recovering*.

– Grows faster than traditional stock/bond splits like the classic 60/40.
In the last 5 years, the S&P 500 has gained 116% and the BlackRock 60/40 portfolio, BIGPX, has gained 42%. In comparison money invested with Inclusivest would have grown 273%*.

5 Year Returns comparing Inclusivest (Tail-Risk Hedging), S&P 500 ("Ride it Out"), and BIGPX ("Stock/Bond Split")

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*Theoretical returns based on backtests. Past performance and historical backtests are not a guarantee of future returns.