From The Founder: Why Am I Not Getting the Return of the S&P 500?


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In 27 years as a financial advisor, I’ve witnessed a lot of investment fads in which there comes a moment when many investors begin asking, “Why in the world do we own anything other than (fill in the blank)?” What goes into that blank is different every time. It could be an individual stock, a mutual fund, or a group of investments that is performing so well that it is making all the other choices seem like boring savings accounts.

Already in this century, I’ve heard this question about (working backwards in time) the so-called Magnificent Seven tech stocks, Bitcoin, the funds/ETFs of the investment manager Ark Invest, and, believe it or not, internet stocks such as AOL and Cisco Systems. These are just a few off the top of my head.

The reason I bring this up is because that question is coming up more and more frequently to our advisor team as well as I’m sure to advisors all over the country. I also realize that you may have wondered this in your mind – and you may have even asked it of us.

What is quite fascinating to me is that this time around it’s not some speculation like Bitcoin. Instead, it is the index of the stock prices of five hundred of America’s leading companies: the Standard & Poor’s 500-Stock Index. Yes, the question many have asked is, “Why in the world do we own anything other than the S&P 500?”

As I’ve considered this, it occurs to me that there are likely two underlying questions in addition: “Why am I not earning the full return of the S&P 500 the last several years?” And “Why do you resist getting rid of the lower returning investments and replace them with the better performing S&P 500?”

If you’ve ever wondered any variations of these questions, allow me to answer!  The answer to the first question is almost certainly that your advisor has had you far more broadly diversified than just the Index to reduce the potential risk of loss in your portfolio. Broad diversification is, first and foremost, a risk-management device.

When compared to a portfolio of only the S&P 500, a true advisor will first diversify into different types of stocks such as smaller and international stocks. Then they will diversify into many of the areas beyond public stocks that are now thankfully available to investors, such as bonds, real estate, private equity, lending funds, real estate debt, as well as safe options such as your bank emergency reserve and annuities. In Preservation Specialists terms, we’re divvying up your Roof as well as spreading your allocation into the Foundation and Walls of your Financial House.

This diversification will always reduce your risk of losses. In return, it will often lower your highest possible return. This is a classic diversification approach that is important to use throughout your investing life but is far more critical when you are very close to or in retirement. The result over the last several years has been that your return has not matched the S&P 500 because large U.S. companies have been on an amazing run while many other investments have not. Believe it or not, this means that your portfolio is doing pretty much exactly what it was engineered to do. In time, if history is any guide, those lagging investments will have their moments in the sun while the largest U.S. companies fade, if only by comparison.

The fact that it is taking a really long time for that role reversal to happen does not invalidate this strategy in the least, particularly because our job is to guide you toward and through a multi-decade retirement. These days, we remind ourselves often of Warren Buffett’s famous quote: “The stock market is a device for transferring money from the impatient to the patient.”

The second question I mentioned was why, in the face of years of over performance by the S&P 500, don’t we recommend selling out of your other investments and reinvest into the S&P 500. The answer is that it is our job to try to remain as rational as possible. One of the fundamentals of a rational investor is that you don’t sell sound out-of-favor (and possibly undervalued) investments to chase popular (and possibly overvalued) investments that have been booming. If anything, we actually want to do the opposite.

There are many statistical examples of these historical conclusions. The most obvious to me being that on two separate occasions during a ten-year period in this century, the S&P 500 lost top-to-bottom 49% and 57%. It went down by a third in a single month when COVID hit. And barely two years ago at this time, the Index fell over 25% in 10 months. I advised clients through each of those challenging markets, and I can assure you that it is a very rare investor that can ride through those types of storms without panic. Who really wants to expose themselves to that much risk and worry?

For what little it may be worth: I sure don’t. But I’m not trying to “outperform” anyone or anything else. Instead, I’m focused on trying to accomplish my goals. Of course, that is what we want for you as well. Ultimately, your advisor will remain focused on helping you achieve your financial goals, which usually starts with creating a steady income throughout your retirement while making sure you never run out of money. Seeking to help you accomplish your goals is the one thing that won’t change, no matter what happens with the S&P 500, or Bitcoin, or whatever is the next investment that gets everyone’s attention.

We understand that investing is a complicated and emotional journey. We hope that this article helps answer some of the questions you may have been asking; and we know that at some point in the future, these types of questions will begin to creep in again. Our advisor team will be there when that happens, and we will continue to help you stay focused on accomplishing your goals – because that is what you have hired us to do!


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