Last week the market lost about 2.3 percent. Given this news, you should be asking: "How did my portfolio fare?"
I spoke to two investors last week about their performance. Both had different stories to tell. The first investor lost the same amount as the market, primarily because he did not have the correct mix of asset classes in his portfolio. The second investor lost money, but her portfolio was down only 0.94 percent, about 60 percent better than the market.
Why did the second investor do better than the first?
Investor No. 2 had the right mix of asset classes. Her portfolio had some asset classes that lost money last week, but also several that lost less than 2.3 percent, and some that even made money. The diversity of the asset classes that helped, because many of the asset classes worked independently of one another. Each asset class's performance was not necessarily related to the other's performance.
Most investor portfolios have an allocation so closely tied to the U.S. market, it's no wonder they mirror its performance. Let's take a look.
[In Pictures: 6 Numbers Every Investor Should Follow.]
Below is a sample of three portfolios and their respective performance numbers. Think about which investment you would like to have. (All performance numbers are for the week ending June 3.)
- Portfolio 1: 100 percent S&P 500. -2.32 percent.
- Portfolio 2: 65 percent S&P 500, 20 percent Barclays Aggregate Bond Index, 15 percent MSCI EAFE Index. -1.47 percent.
- Portfolio 3: 9 percent FTSE/EPRA NAREIT Global Real Estate Index, 9 percent MSCI Emerging Market Index, 9 percent Dow Jones/UBS Commodities Index, 9 percent Deutsche Bank G10 Currency Harvest Index, 9 percent Russell 2000, 9 percent JPMorgan Emerging Market Bond Index, 9 percent S&P 400, 9 percent MSCI EAFE Index, 9 percent S&P 500, 9 percent Credit Suisse Long/Short Liquid Index, 9 percent Barclays Aggregate Bond Index. -0.94 percent.
The true difference above begins with having more asset classes. However, the real value comes when you can choose asset classes that are not correlated to one another.
The key is to include more asset classes in more markets, and to include investments that are less correlated to the U.S. stock market. Also, don't be afraid to think more globally, which is one place to find investments that are less correlated to the U.S. stock market.
When investing, never forget: It is not how much you make, it is how much you keep. I want you to keep more of your returns.
Good luck and happy investing.
Kelly Campbell, CFP® and Accredited Investment Fiduciary, is founder of Campbell Wealth Management, a Registered Investment Advisor in Alexandria, Va. Campbell is also the author of Fire Your Broker, a controversial look at the broker industry written as an empathetic response to the trials and tribulations many investors have faced as the stock market cratered and their advisers abandoned their responsibilities to help them weather the storm.