Lost Decade for Investors?

Strategic asset allocation is alive and well! Despite the return for investing in the S&P 500, a large cap index, over the last ten years was -2.7%; some other asset classes, equity styles and foreign markets performed quite well. 

Several U.S. equity categories did considerably well. 

Russell Midcap Value Index +7.9%,

Russell 2000 Index of small cap stocks +8.3%

Dow Jones Indexes U.S. Real Estate +9.2%

Dow Jones Indexes WORLD (EX: US) Real Estate + 6.8%

The last decade was lost by those who still believe that the S&P 500 alone is a diversified portfolio. 

The average return over the decade for a 20 asset classes, equity styles, and foreign markets was 5.5%.  Admittedly, this is not a stellar performance, but is far better than 0%.  Each dollar invested in an equally-weighted portfolio would have grown to $1.70. 

Several lessons emerge from this simple analysis.  First, a portfolio is not broadly diversified if it’s all U.S. large cap stocks, as is the S&P 500. 

Second, the S&P 500 is a good representation of the large cap market, but not a good representation of the investment universe.  Improvements in return are possible by including more asset categories. 

Third, enough people are talking about the lost decade to motivate writing this article – it has not been a total loss for those who diversified broadly. 

One diligent researcher with the proper tools and insights is often more reliable than a hundred professional pundits paid for being entertaining – not to keep your retirement safe. Beware catchy, entertaining factoids conveniently repeated on CNBC.  Much of the time, their entertainment value far outweighs their informational value.  Remember, they get paid when people watch advertisements – not when people's investments do well, and as we all know – incentives matter.

Our counsel for portfolios is simple and clear.  Invest and rest with a broadly-diversified portfolio.  Do not try to time the market and definitely do not head the temptation to imitate your neighbors.  The key to a successful investment experience: establish a Plan and stick to it during the times emotions tempt you to abandon it.