Q. Dear Debbie,
I have noticed that my portfolio seems to be underperforming versus the popular S&P 500 Index. Am I doing something wrong?
A. Not necessarily. Despite the volatility we experienced the last few months, the S&P 500 maintained mostly positive results up until this week (Dec. 22). Unfortunately, by using this one benchmark as a comparison to your portfolio, you could be led to believe that your investments are underperforming the market. In actuality, the positive performance of the S&P 500 can be tied to a small group of growth stocks that are not representative of the market in general. For example, in December 2015 the average S&P 500 stock was over 10 percent below their 52-week highs. And, to make it worse, the average small cap stock as measured by the Russell 2000 was over 20 percent below its 52-week highs. Additionally, if your account held any energy sector stocks the picture was even dimmer, with the average energy stock in the S&P 500 Energy over 40 percent below 52-week highs. In short, the Morningstar Mid Cap Value Category Average is down 6.72 percent as of Dec. 21. So, the typical investor is, more likely than not, experiencing lackluster to negative results much like you.
Many analysts believe a rebound for some stocks in the first quarter of 2016 is possible, as the average corporate balance sheet remains strong. But, beware of possible continued volatility. Ultimately, if you have concerns about your investments, you should reach out to your financial representative, who can help you review your account.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results. The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10 percent of the total market capitalization of the Russell 3000 Index. The Morningstar Mid-Cap Value category is a portfolio of medium sized equities in the U.S. market that are less expensive or growing more slowly than the market. The S&P 500 Energy Index comprises those companies included in the S&P 500 that are classified as members of the GICS energy sector.
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Debbie Taylor, principal of Taylor Financial Group, a Franklin Lakes-based independent wealth management firm, provides the above information. The opinions voiced are solely those of Taylor and do not reflect the views of LPL Financial, nor should they be taken as investment, tax, or estate planning advice for any specific individual. Consult with your own tax, legal or investment professional on how the information may relate to your situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.