There is a natural tendency to want to compare our own portfolio to the Dow Jones Average or S&P 500 Index because that is what the media defines as ‘the market’. This is misleading at best and dangerous to our financial future at worst. Very few of us actually invest in the S&P or DOW and frankly most of us don’t invest specifically to match the market but rather to meet our personal income needs.
We design portfolios that are based upon meeting your individual goals in a manger that is consistent with your risk tolerance, tax situation and myriad of other factors. When looking at any benchmark – including the DOW or S&P – there is no consideration for these things. If your goal is a balanced portfolio with income and growth, you will tend to lag the 100% equity benchmark when markets are going up – but do better when they are going down. Over meaningful periods of time this means your portfolio should better meet your needs and outperform.
If someone wants to just look at performance they need to create a benchmark that reflects their personal portfolio. In most cases this will include international holdings, fixed income, cash, and all sizes of stock capitalization (large, medium and small). Ultimately, though the true measure of success should be if you can maintain and enhance your lifestyle over time. This is benchmark you.
We seek to generate the highest level of net return (after fee’s, tax, expenses, etc.) in a manner that is consistent with your personal risk tolerance, current income needs, tax situation and estate planning objectives. This may or may not correlate in any given period with the DOW or S&P 500 nor is it intended to. Please contact us if you have questions, concerns or if we can otherwise be of service. We are here for you.
The S&P 500 and the DOW Jones Average are passively managed indices that are generally considered representative of the U.S. stock market. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. The opinion expressed in this article is that of Randy Carver as of 04/02/2015 and not Raymond James Financial Services Inc.