3 reasons why ark invest might not fit your portfolio - The Average Joe

    3 reasons why ark invest might not fit your portfolio

    Victor Lei — Head of Research

    December 2, 2021

    ark invest

    December 2, 2021

    ARK Innovation (NYSE:ARKK) — the top-performing ETF of 2021 — is down 21% this year, leaving those who bought at its peak feeling the pain. Catch up: What is an exchange-traded fund?

    Despite underperforming in 2021 and seeing billions flow out of her ETFs, Cathie Wood continues buying dips on tech stocks, including Robinhood (NASDAQ:HOOD) and Twitter (NASDAQ:TWTR) — both falling over 40% in recent months.

    In a post, Sachin Nagarajan — a data analyst at Morning Star — shared three reasons why ARK Invest isn’t for him:

    • He’s already overweight growth stocks in other areas of his portfolio.
    • He doesn’t have the stomach for volatility.
    • He loves “forget-about-them” investments.

    If you feel similarly, ARK might also not be for you. ARK’s ETFs focus on innovation and growth — a riskier area with frequent fluctuations.

    • The past: Which is why ARK has fallen nearly 30% or more three separate times in the past seven years.
    • The future: Interest rates are expected to rise in 2022 — which historically hurt growth stocks.

    If you held ARK since its inception in 2014 — you would have achieved a 26% compounded annual return — double the ~13% annual return of the S&P 500 in the same time period. But volatility is the price to pay for higher returns.

    The Joe’s Take: Eventually, growth stocks will fall hard enough where they start looking cheap again. These low points often present the best entry points for investors.

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