“The market” is NOT your portfolio

Years ago, a client sent me an e-mail. It simply stated:

“Us down, the market up, why?”

Why am I underperforming the ubiquitous “market”?

I blame financial media. Fox. CNBC. MSNBC. Barron’s. Bloomberg. Money. Forbes. Dave Ramsey. Suze Orman. All of ‘em, for giving people the wrong impression about “the market.”

On behalf of all my qualified and distinguished peers, to clients throughout the United States of America (though I’m sure this conversation has already happened more today than all the deaths due to smoking) you don’t own just the market that was quoted. (At least I hope)…

Come on? You know like on NPR, where they play light jazz and say “now for the numbers”?

Those are not your (ONLY) numbers!

You don’t just own the Standard and Poor’s 500 index, or Dow Jones Industrial Average.

Why not?


Why not just throw it all in the S&P 500, and call it a day? 

Two reasons: First off, the S&P 500 is down 14% on average throughout the year. Yes, read that again: 14% down on average once throughout each year. Remember last Christmas? You forgot already? Intra-year, “the market” was down 20%.

You’d need to get used to that. Is that okay? But more importantly, all the U.S. eggs in one basket can go the other way. Do you remember the lost decade? Oh… I do… Clients chastised me in quarterly reviews and asked…

“Why do we own U.S. Stocks again? That’s the dumbest thing you could do.”

December 31, 1999 through December 31, 2009, the S&P 500 index had an annualized return of -0.95%. Being a prudent long-term investor means you don’t own the media-quoted “market.” And your portfolio doesn’t look like the one streaming across the ticker screens of CNBC, or Fox News. Why not? You have bonds, international stocks, emerging markets, REITS, and other asset classes. I hope.

Not just “the market.”