My portfolio hasn’t kept up with the S&P 500. What gives?
If a client’s portfolio is well diversified, this should be expected from time to time. The more conservative the portfolio, the more often this will be true simply by virtue of not having all the money in stocks.
Looking just at the equity portion of a portfolio, unless you have a working crystal ball, it is highly unlikely that moving significant chunks of money between asset classes in an effort to be in the best-performing class will add any value over time after costs. Avoiding this losing game is one of the very reasons to diversify in the first place.
One benefit to diversifying is a less volatile investment experience. They will never be entirely in the worst performing asset class. One price clients pay for this smoother ride is they never get to be in the best performing class.
Perception Vs. Reality
These four sentiments present a great opportunity to discuss your client’s perception of how they are doing. I’ll bet few, if any, were concerned that their portfolio didn’t keep up with the Russell 2000 in 2013 (+38.82 percent). Their frame of reference is on the headlines, not their goals or what they can control. That’s usually dangerous. Good thing you can help them refocus on what matters.
Dan Moisand, CFP, has been featured as one of the America’s top independent financial advisors by Financial Planning, Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines. He practices in Melbourne, Fla. You can reach him at [email protected]