Check the background of this financial professional on FINRA's BrokerCheck.
David C. Malone, CRC®
   

Newsletters


The newsletter articles on this page provide valuable information on timely and interesting financial issues across a variety of subject areas, including retirement, investments, personal finance, annuities, insurance, taxes, college, and government benefits.


Assessing Portfolio Performance: Choose Your Benchmarks Wisely
Estate Planning Strategies in a Low-Interest-Rate Environment
Give Your Retirement Plan an Annual Checkup
Do I have to pay an additional tax on investment income?
How can I manage the net investment income tax?


SIGN UP NOW
Enter your name and e-mail to receive e-mail updates from me.
NAME:
E-MAIL:


 
 

Assessing Portfolio Performance: Choose Your Benchmarks Wisely

You can't help but hear about the frequent ups and downs of the Dow Jones Industrial Average or the S&P 500 index. The performance of both major indexes is widely reported and analyzed in detail by financial news outlets around the nation.

Like the Dow, the S&P 500 tracks the stocks of large domestic companies. With 500 stocks compared to the Dow's 30, the S&P 500 comprises a much broader segment of the stock market and is considered to be representative of U.S. stocks in general. Both indexes are generally useful tools for tracking stock market trends, but some investors mistakenly think of them as benchmarks for how well their own portfolios should be doing.

However, it doesn't make much sense to compare a broadly diversified, multi-asset portfolio to just one of its own components. Expecting portfolio returns to meet or beat "the market" is usually unrealistic, unless you are willing to expose 100% of your life savings to the risk and volatility associated with stock investments.

Asset allocation: It's personal

Just about every financial market in the world is tracked by one or more indexes that investors can use to look at current and historical performance. In fact, there are hundreds of indexes based on a wide variety of asset classes (stocks/bonds), market segments (large/small cap), and styles (growth/value).

Investor portfolios are typically divided among asset classes that tend to perform differently under different market conditions. An appropriate mix of stocks, bonds, and other investments depends on the investor's age, risk tolerance, and financial goals.

Consequently, there may or may not be a single benchmark that matches your actual holdings and the composition of your individual portfolio. It could take a combination of several benchmarks to provide a meaningful performance picture.

Keep the proper perspective

Seasoned investors understand that short-term results may have little to do with the effectiveness of a long-term investment strategy. Even so, the desire to become a more disciplined investor is often tested by the arrival of quarterly or annual financial statements.

The main problem with making decisions based on last year's performance figures is that asset classes, market segments, or industries that do well during one period don't always continue to perform as well. When an investment experiences dramatic upside performance, it may mean that much of the opportunity for market gains has already passed. Conversely, moving out of an investment when it has a down year could mean you are no longer in a position to benefit when that segment starts to recover.

On the other hand, portfolios that are left unattended may drift and begin to take on too much risk or become too conservative. Rebalancing periodically could help bring your asset mix back in line with your preferred allocation.

There's really nothing you can do about global economic conditions or the level of returns delivered by the financial markets, but you can control the composition of your portfolio. Evaluating investment results through the correct lens may help you make appropriate adjustments and effectively plan for the future.

Note:  Keep in mind that the performance of an unmanaged index is not indicative of the performance of any specific security, and individuals cannot invest directly in an index. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss. All investments are subject to market fluctuation, risk, and loss of principal. Shares, when sold, may be worth more or less than their original cost. Investments that seek a higher return tend to involve greater risk. Rebalancing may result in commission costs, as well as taxes if you sell investments for a profit.

 
©2017 Broadridge Investor Communication Solutions, Inc. All rights reserved.
Tell A Friend Tell A Friend
Connect with us on: Go to LinkedIn  
 
 
 

111 Westport Plaza Dr, Suite 102  St. Louis, MO 63146 *314-576-5991*

Securities offered through Peak Brokerage Services, LLC, Member FINRA/SIPC
Investment Advisory services offered through Visionary Asset Management, Inc. and Blackridge Asset Management, LLC, SEC Registered Investment Advisors.

Retirement Solutions, LLC is not an affiliate of PEAK Brokerage Services, LLC.

Investment products and services available only to residents of : AZ, IL, KS, and MO

We are licensed to sell insurance products in the following states: IL, KS, and MO



This communication is strictly intended for individuals residing in the state(s) of AZ, IL, KS, MO and TX. No offers may be made or accepted from any resident outside the specific states referenced.
 


Check the background of this financial professional on FINRA's BrokerCheck.