2018 Third Quarter Market Update

Why is my portfolio underperforming the US stock market?

That is a common question we are hearing these days.  Understandably, you see in the media that the stock market is reaching new all-time highs, then you look at your portfolio and see either no gains, or a gain considerably lower than the one posted by the stock market. Indeed, the S&P 500 is up 8.58%, through September 30th, 2018… and your portfolio isn’t.

The answer, of course, is that we never suggested that you invested 100% of your portfolio in the stock market. We advised you to diversify into different asset classes to smooth your returns, (and your nerves) over the long term.  Your portfolio is diversified into stocks, including the U.S. stock market, (fantastic) international stocks, (underperformed) and emerging market stocks (dismal). You also have exposure to bonds, which have done poorly.  For those of you who may be a fit, bond alternatives have been incorporated to address this issue.

For year-to-date 2018, the U.S. stock market stands out as the only star performer, and just about all of the other stock and traditional bond investments have suffered.  However, no sensible investor would put all their assets in stocks, which is typically the most volatile and risky investment in your portfolio.

Let’s suppose you did it anyway: you put all your money into stocks this year. Your portfolio would probably look something like this: 60% U.S. stocks; 30% international stocks and 10% emerging markets.

The international and emerging market stocks have both lost money and performed very poorly for a variety of reasons: the relative strength of the dollar against foreign currencies, fears about trade sanctions and global politics (Brexit, North Korea, Syria to name a few).

How would your mythical all-equity portfolio have performed this year? Through September 30th 2018, you would have gained 3.49%… hardly the kind of return you would expect for taking this big of a risk.

Summing up, we put together (particular to you) a well-crafted long term portfolio consisting of equities for growth, bonds and bond alternatives for stability, not 100% US Stocks.

We have had a very good five years.  Our job in good times and bad is to remind you to stay your course.

Do not let emotions rule your good decisions.  As always, call if you have questions.