Why doesn’t my portfolio have the same returns as the Dow?

Published by Taylor Financial Group

Q. Dear Debbie: Why doesn’t my portfolio have the same returns as the Dow?

A. You may have noticed some recent gains in the market, including a recent surge in the Dow Jones Industrial Average. So, if you are wondering why the Dow’s performance is up nearly 6.2% year-to-date and hitting record highs, but your portfolio isn’t reflecting the same thing, the answer is simple.  Your portfolio does not look like the Dow.  Nor does the Standard & Poor’s 500 Index or the NASDAQ.  In fact, the exceptional performance of the Dow is due to just a few stocks held within the 30 components of the Dow.

The Dow is a price-weighted index, so its gains are reflective of its largest top performers. The key players within the Dow include Goldman Sachs, Caterpillar, JPMorgan and UnitedHealth Group. Although the Dow’s improved performance is a sign of optimism for the market, it should not provide false expectations for your personal portfolio, which is generally much more diversified than holding 30 stocks.

If you were to put all of your money in one small basket of stocks, and one of those stocks within the basket were to decline drastically, your portfolio’s performance would reflect that.  For example, as of March 22, 2017, Goldman Sachs Group Inc. (GS) stock price was trading at $232.42, but if you look back to March of 2016 it was trading around $150.92.  It wasn’t until November 2016, post-election, that the stock rose over $200.  Prior to that, the stock was basically trading flat for the last five years or more.

By broadly diversifying your portfolio among different sectors and asset classes, you reduce your exposure to risk and provide a way to pursue your goals within your own time horizon.  In the event of a downturn in one sector, your portfolio can remain balanced and recover more readily from minor losses or setbacks.

If you have questions or want to schedule an appointment to review your portfolio, give us a call today.

Email planning questions to [email protected].

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