By now, you may have noticed that consumer financial magazines such as Money, Smart Money and Fortune have published their 2011 Investor Guides.  These guides provide you with all the needed information to make informed decisions with your investments and outsmart the markets.

If only that were the case. Let’s rewind the clock and review their results for 2010.

Money Magazine told us that small company stocks would suffer, since they perform better in the early stage of a bull rally. Because of this, Money urged readers to focus on high quality blue chip stocks.

And the 2010 results were:

• Russell 1000 index (large stocks): 16.10%
• Russell 2000 index (small stocks): 26.85%

Contrary to Money Magazine’s prediction, small stocks outperformed large stocks in 2010 by a wide margin.

Money also recommended ten large company stocks to capitalize on the upcoming outperformance. Unfortunately for the readers who followed the advice, the picks had an average price-only return of 6.3% versus 16.10% for the Russell 1000 index.

Smart Money also picked up on this trend, recommending large stocks over small stocks. They offered 12 stock picks to take advantage of the trend.

Smart Money’s 12 stock picks produced an average price-only gain of 7.5% for the year versus 16.10% for the Russell 1000 index.

Fortune Magazine had a different outlook claiming, in their words, “Making judicious stock selections will be crucial in what is likely to be a topsy-turvy year.”

Fortune recommended ten different stock picks for their readers. And, although Fortune had a great performer in Salesforce.com (up 78.9%), the average price-only return for their picks was 1.75% versus 16.10% for the Russell 1000 index.

That’s not what we would call judicious stock selections.

Comically, in the same issue of Fortune there was a useful article on the appeal of a simple index fund approach: “Stock picking, whether you do it yourself or pay a pro to do it for you, is a mug’s game,” they wrote. “You’re better off buying and holding a cheap, diversified, and consistent index fund, which passively invests in the stocks listed on a broad market benchmark.”

Good advice, but we know it won’t be long before catchy cover stories such as “Top Ten Stocks for the Year Ahead” are crowding the magazine racks once again.  To be sure, last year’s results offer another example of how easy it can be to miss the rewards the capital markets have to offer.

With the dawn of a new decade arrives the financial media’s recommended investments.

Articles with attention grabbing titles such as “10 Stock Investments for the Next Ten Years” entice readers with promises of market beating returns.

But should you follow media’s investment recommendations? Consider the following articles published ten years ago.

In August, 2000, a Fortune magazine article presented “10 Stocks to Last The Decade.”

How would these ten stocks have performed if you spread your investments equally among each pick versus the market and a fully diversified portfolio*?

• Fortune’s 10 Stock Investments:  -44.21%
• S&P 500:  -7.26%
• Diversified Portfolio: +81.04%

Time period – August, 2000 through November, 2009.

Fortune’s stock picks drastically underperformed both the market and a fully diversified portfolio.

A second article by The New York Times asked for Buy and Hold picks from “10 very smart, very successful investment professionals…”

So how did these stock picks fair versus the market and a fully diversified portfolio?

• New York Times:  +25.17%
• S&P 500: -4.29%
• Diversified Portfolio:  +84.35%

Time period – February, 2000 through November, 2009

The New York Time’s picks beat the market but it seems a passively managed diversified portfolio drastically outperformed these “very smart, very successful investment professionals…”

Think twice before rushing out and investing your money in any of the media’s picks for the next ten years!

Having a financial plan and a fully diversified portfolio based on this plan is the best bet when investing for your goals and future.

*Fully Diversified Portfolio:
Dimensional US Adjusted Market 2 Index: 30%
DFA Equally Weighted Emerging Markets Index: 5%
Five-Year US Treasury Notes: 40%
Dimensional International Market Index: 25%
Rebalanced annually

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