Hey guys, it's Sam from Financial Samurai and it's good to hear from you guys again. I took a nice little break to recharge, to rest, to do a lot more writing and I do appreciate all the positive reviews you've given me on iTunes, Spotify, Google Play. It's motivating and it's also very encouraging to keep on going because goodness knows it's a rough, rough time right now given everything is still closed in the middle of July.

And frankly I thought things would be better by July. I thought more things would be open but at least here in California we're rolling back, I don't know, one or two phases. So now not even outdoor zoos are open anymore so that's a bummer. But what are you going to do right?

What are you going to do when let's say your baby is crying at 11 p.m and wakes up your toddler and then after about 30 minutes of soothing your baby finally goes to sleep but your toddler's wide awake and then he just can't go to sleep and he's just playing around and then he bonks his head and he starts crying and then he wakes up your baby.

It's like oh my goodness. I've talked to so many parents trying to just chuggle parenthood and work. I mean we don't have official work but we do like to write. I love to write. I love to address business opportunities that come my way on Financial Samurai and I like to do these podcasts but it's kind of crazy folks.

Everybody really needs to take a step back and pace yourself. Pace yourself because there's just an endless amount of things you could do because you're just stuck at home. We're stuck at home and I'm thinking well why don't I work on the forums and the podcast and write posts and write a new book.

We need to take a step back and think about what our priorities are so we don't push ourselves too hard and burn out and we don't feel too much anxiety. I definitely feel this anxiety like oh man I got to do this this and that or I just need to take a step back and think about the top two maybe three things I need to focus on and those two things are my children and writing.

So if you're feeling a little bit burnt out I totally feel how you're feeling and to make yourself feel better and to make me feel better I think we've got to look at the bright side of things and one of the bright sides is the stock market. I mean the Nasdaq is up over 20% year to date.

We're 20% higher than before the pandemic began. That's crazy and now the S&P 500 at 3200 is about back to where we started at the beginning of the year. So it's as if nothing has happened at all at least in terms of our public stock investments at least and frankly this feels really really weird.

It feels like we're in this dream world where if we wake up we're gonna see devastation in the streets, buildings collapsed, and our true net worth down 50 to 80 percent and we're hoping we're hoping we don't wake up from this dream but the reality is this is real.

This is real that the stock market is doing okay in 2020 despite all that is going on. So one of the things I want you guys to think about is what the stock market represents. There are probably literally millions of variables that go into determining the value of the S&P 500 because there's 500 companies and each company has different variables to determine earnings and growth rates and forecast assumptions and so forth and it can get very very difficult and complicated to try to forecast the future.

I've always told all of y'all to try to forecast the future six months, 12 months. It's very hard to do but it's a good exercise to think about the future so you can plan ahead and let's be frank the future is murky right now. It's maximum uncertainty. If you watch the news which I don't recommend you watch too much of or if you stay on social media especially Twitter you will see a tremendous amount of fear, terror, arguments, debates that have really brought to the forefront a lot of suffering if you pay a lot of attention.

Now I don't know if this is good for your mental health. Actually it can be good for your mental health looking at this stuff all day long so I recommend you to take a social media break, take a news break, turn off your electronics, maybe listen to a more soothing calm podcast or read a book or something but I want to say that out of all the variables that go into determining the S&P 500 just pay attention to the one which is the level it is right now and the level it is right now is saying things are going to get better.

Everything will be okay. There will be progress. Believe in capitalism and you know these firms like Moderna, Pfizer, Gilead trying to search for that vaccine to release by the end of the year or by 2021 at the latest. Things are going to get better folks and you have to believe it'll get better and there's really a good chance that the stock market knows something more than what we know, more than all the talking heads, the bulls and the bears out there arguing their positions and arguing their books.

The stock market generally knows more than we do if you look at history and so I believe things will be okay. Now in terms of the stock market it's very interesting because I think most of us would agree that investing passively in index funds or ETFs is the way to go and we know this is the way to go because the data says it's the way to go.

The large majority of actively run equity mutual funds and bond funds have underperformed their respective indices, their respective benchmarks. We're talking 80 plus percent of actively run equity mutual funds have underperformed the S&P 500 and other various indices. So with this data in mind you would kind of be a fool to invest the majority of your investable assets in an actively run fund.

Yet despite the data actively run funds still account for something like 45-50 percent of all the funds out there and all the assets under management out there. So if you want to get rich, actually the better way is to study finance, to study investing, to study cash flows and income statements and balance sheets and try to be an analyst or a portfolio manager at one of these actively run money management firms.

These folks make bank. They're talking hundreds of thousands of dollars, if not millions of dollars if you're a partner at one of these private money management firms. They're really going to get paid regardless if they underperform or outperform. Now obviously they're going to make even more if they outperform, but even if they're underperforming they're still making hundreds of thousands of dollars.

And if you want to join the sell side, well it's also quite lucrative as well. There's this one fellow, a Tesla analyst at J.P. Morgan, and he has been negative on the stock and he's had a sell rating something like four years in a row and he just upgraded the target price to $290 a share when the stock is at $1,500 a share or thereabouts.

We're talking about a 5x difference, folks, and he's still sticking to his $290 target price. Well, it's a new one. I mean, that's a joke. But he's still going to get paid probably a $250,000 base and he's probably going to get a bonus of maybe, I don't know, $100,000 to $500,000, maybe more.

So the other lesson is never doubt yourself. There are people out there making lots of money every single day without the proper experience or the results. So you have got to believe in yourself because if you actually do deliver on incredible product, incredible service, you're actually going to do even better.

So back to the original thesis of this podcast, which is what should be the right split between active and passive or passive and active. And I think we should all agree that the majority of our investable assets should be in passive investing. And so there's different splits for different types of personalities.

I think the vast majority of people, the average person who is not a professional stock picker, doesn't work in finance and so forth, should probably have 80 to 90% of his or her investable assets in passive index funds or ETFs. And for the remaining 10 to 20%, you can invest in actively run mutual funds that have historically done well, that are 5 star, morning star rated, and so forth.

In addition, you can use part of the 10 to 20% to actively invest in individual stocks. I've been doing this since 1996, I believe, when I first opened up my first online brokerage account. And the idea was quite simple. Why not invest in companies you love, whose products you use, and then invest a majority of your funds in an index fund.

So it's an index plus or a passive plus strategy. I like this strategy a lot for several reasons. One, if you just invest 100% in the S&P 500, for example, you're going to ride the ups and downs of the S&P 500, which is great over the long term, because the S&P 500 has proven to return about 8 to 10% a year since about 1926.

But you're not going to be able to outperform the masses who invest all of their assets in the S&P 500. You will outperform those who don't bother investing, who don't listen to Financial Samurai, or read any other financial websites or news sites. That's fine. But you're also trying to outperform the masses who do invest, because wealth is relative.

And if you just stick 100% to index funds, you're always going to be part of the average person who invests in index funds. Now, if you can invest 10% to 20%, you have a chance. You have a chance of outperforming. And that hope and that chance is predominantly the reason why there are still so many actively run funds out there.

People are hoping that they choose the right fund. The fund managers themselves are hoping that they outperform, because sometimes they will. 20%, 30% of the time, they will outperform in one year, or over five years, or three years, or whatnot. And so long as there's hope and as long as there's a chance, people are always going to try to risk their money into thinking they can outperform the market.

But we all know we can't. Now, if you just allocate 10% to 20%, even if you lose all your money, which you're probably not going to if you have a relatively diversified portfolio of at least 5% to 10% positions in your 10% to 20% active investing allocation. Even if you lose all your money, you're still going to have 90% to 80% of your money left that's going to go up and down with the S&P 500.

But there are chances. There are opportunities where you could be able to significantly outperform the S&P 500 if you invest in the right stock. And we all know that tech stocks have done tremendously well over the past 10, 15 years, actually for longer than that. There's names like Google, Facebook, Apple, Amazon, Tesla.

And there will continue to be great outperformers out there. So why not go hunting? And if you go hunting, maybe you start with just one position, a small position. You learn about the company. You learn how to analyze the company. You learn how visionaries and leaders think and how they plan ahead.

You might get better investing over time. You might get lucky. You might want to own the stocks or the very products you use every single day. As soon as we had our baby, we decided to go Amazon Prime. And we're thinking, "Man, Amazon Prime is a lifesaver because we don't have to go out and get stuff like diapers and so forth anymore.

We just have everything delivered." So we started aggressively buying Amazon stock. And so whatever that company is, it actually feels great to use the product and then invest in the product and hopefully make money in the product to then pay for more of the product for free. Not bad if you can make it happen.

However, we all know that we cannot consistently outperform the index, which is why we need to keep that active investment portion to a minimum. There was an interesting JP Morgan study that said that the average investor returned 1.9% between 1999 and 2018. So that's a 20-year period. 1.9% a year.

I mean, that doesn't even beat inflation during that time or money market funds or the 10-year Treasury bond yield. So we investors, we retail investors, are terrible at picking stocks. Let's just be aware of that. And we also, most of us are not professional investors. We don't have time to wake up an hour before the stock market opens at 5.30 here on the West Coast and read up all the research, get on earnings conference calls and analyze income statements.

We don't have time. We have other day jobs. We have kids to take care of. We have friends to hang out with. Well, maybe not too many friends now with the lockdowns, but you get what I'm saying. We've got other things to do. So let's not kid ourselves about being able to consistently outperform.

Time and time again, folks, I have seen our investment winners get into our heads. We start suddenly confusing brains with a bull market, which is a classic saying on Wall Street. And then we start taking excess risk with our money. And then, surprise, surprise, things kind of shock us into losing money and bad things, exogenous things happen.

And then we're left in tears trying to pick up the pieces. So 80 to 90 percent in passive investing, the rest in active investing. You know, obviously, do your due diligence, do your work, make calculated bets, diversify your portfolio and good luck to you. It is an absolutely absurd time in the stock market right now with tech stocks going up like crazy.

The S&P 500 almost back to even and still so much uncertainty. So please, folks, be responsible when you're investing. Take calculated bets. The last thing I want you guys to do is lose more money than you can afford. Thanks so much, everyone, again, for all the positive reviews. It keeps me going.

and I'll talk to you guys later from the hot tub hopefully in a week or two.