Isn’t that always the question? We all want to feel like we’re doing as well as the market.
But the more important question is: Should your account even reflect the market?
In 2009, the market was up 26 percent. In 2010, it was up 15 percent. It was virtually flat in 2011, but the S&P 500 was up again about 15 percent in 2012. In Jan. 2013 alone, the market was up another five or so percent. So we’ve had several very solid years.
Yet in a recent survey when individual investors were asked whether the stock market had gained significantly or moderately, fallen slightly or greatly, or stayed the same in the prior 12 months, most respondents didn’t answer with much certainty.
When “average retail” investors were asked how the market has done, no more than one-third said the market had “gained significantly” or even achieved “moderate returns.” That tells me that in over four years, investors have barely noticed the success of the stock market.
But people are starting to pay attention. Investors this year are beginning to take note of the success of the stock market and look at how their mutual funds are doing by comparison. If the S&P index outperformed their allocation, they want to know why their returns didn’t match the “general” stock market.
What investors need to consider is the level of risk they have been taking to get their return.
If you have a correctly allocated portfolio (one that’s right for your time horizon and risk tolerance), you may not get returns that beat or match market increases. But you just may be protected when the market turns lower. And inevitably markets go through “corrections” big and small.
Trying to keep up with the Joneses (or the Dow Joneses) is never a good idea. If you’re chasing market-like returns, you need to be prepared to assume market-like risk. This means an investor could have seen their account go down by as much as 50 percent between 2007 and early 2009.
If you’re an income investor, who relies on your portfolio to generate a steady stream of income to support your lifestyle, then market matching returns are not likely in your future. But consistent income is. If consistent income is your goal, then focus on that. Resist the temptation to compare your portfolio to the S&P 500.
It’s good to pay attention to the market. It’s an even better idea to know your own investment goals and how you’re doing relative to those goals.
Ask questions. But be sure you’re asking the right questions.