Only 4% of the total number of stocks (1,092 stocks out of a total of 25,967) accounted for the net gain for the entire US stock market since 1926.
That’s the conclusion of a recent study by a professor of finance at ASU that Dan Solin referenced in his latest post. The data show that only a small fraction of stocks (1,092 out of 25,967) have accounted for the total net gain of the entire stock market since 1926. Most stocks (96%) collectively matched 1-month Treasury bill returns over their lifetimes. 1-month Treasury bills are risk-free! They are backed by the full faith and credit of the U.S. Treasury, which means that investors who bought all those stocks took on additional risk, for no reward.
This is just the latest evidence that supports the importance of broad diversification using low-cost index funds. It’s the only way to be sure your portfolio includes the small percentage of stock “winners” over the long term.
