So, how’d we do last year?

Posted by on Jan 6, 2015

The S&P folks say that both the S&P500 and the Dow Industrials hit their lows for 2014 early in February. By last Wednesday both had had fairly respectable years. Here’s what they did.

S&P said their S&P500 Index again closed the year higher than the one before for the third straight time, having gained over 11% in 2014. At year end, the Dow had made it six successive years of gains. The senior market indicator finished higher just about right at 7.5%.

And the NASDAQ. Home of many of those tech and biomed names that made (bad) headlines earlier in the year as being “highly risky” and “in a bubble.” Well, some of them are likely pretty risky as they are highly subject to the whims of traders with waves of buying and selling blasting through those sectors with some regularity. This time, the trading tide took the NASDAQ up over 13% for 2014.  However, thinking of these kinds of stocks as being all the same from a valuation basis is usually pretty poor practice. (Think now of how many of the current bailout views on the entire energy sector compare.)

Compared to what?

So, now you know how the major US stock indicators performed. The next thought or question usually is something like “How did I/we do?” My feeling is that that question is focusing on the totally wrong thing, i.e., market performance. That’s why the caption above is my answer to this question.

Many people get all wound up because they didn’t do “as well as the market.” Let’s start by asking just which market are they referring to? Is it one of the above which are, in actuality, just different slices of the same US market? In that regard, just which benchmark are you using for your reference? Is it all US? Does it contain anything other than big-name US stocks? Most important, do you own every issue that the index you’re following has within it?

Next, how long have you had the money you’re asking about working for you? Did you keep it invested all year…in spite of all the noise at different times trying to make you act against your own self-interest? Did you allow for the partial earnings of your deposits over the year into your retirement plan(s)?

Finally – for now – if you say you do own all the issues in your benchmark, because you own an index fund of one shape or another, is that the one and only investment you have? Do you also own some bonds or bond funds? Any alternative-type investments? How about real estate (other than home) or precious metals? Were ANY of your investments in non-US stock stuff? How much? If the answer to the first question is no, then, by definition, you’ll never do as well as “the market” because all your money isn’t in that market…

Big picture view

Perhaps having gone through this little mental exercise can help you see that there is more to how you did than the measure of a single index – or even a blend of them. As Nick Murray has always rightfully said, there is no consistent way to measure performance. Just because you got a home run this time, doesn’t mean you’ll get one the very next time, does it?

Successful investing is pretty boring, actually. The steely-eyed traders only resemble long-term investors in that they may occasionally, for maybe a second or two, actually own a piece of the same company. A successful, long-term investor will tell you that there is almost always a time when a portion – operative term – of their investments aren’t doing all that great. As markets are cyclical, the specific sections of their portfolio not doing well likely change over time.

Those successful folks will be aware of how the market is doing, or has done, but only in an overview sense. They don’t get all focused in on some numerical data point that only has real meaning relative to whether it’s higher or lower than a previous value it had. Here’s what I believe you should focus on.

The only really important number

What is that? In truth, it depends.

Let me explain.

You need to be able to determine what your near, medium and longer-term goals are for your life. Kind of important. The very shorthand version of the longer process which we do for our clients, will then have you determine just what amount of money will be required to allow you to do those things in the manner and location you want to do them.

Because the goals are for different times, they shouldn’t all be managed as if it were all for one vague “retirement” period. Allocating for growth, income and protection of those differently-timed assets are keys to getting to where you want to be. How your assets get allocated is based on you and your personal needs, abilities and desires.

In our approach at Opus, we believe that “how you did” should be determined not by watching some index, commodity price, graph or whatever. It should be the positive answer to these couple questions.

How did I do relative to achieving the annual goal(s) I set for my overall assets? And did I do so while taking the least amount of investment risk I need to in order to do so?

Getting to the yes on both of these questions is what we strive to do for our clients. If you’d like a no obligation second opinion on your portfolio or to discuss how we work, we’d very much appreciate hearing from you.

Happy 2015!


Securities and Investment Advisory Services offered through KMS Financial Services, Inc.

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Past performance is not indicative of future returns.

Investing in securities of any type involves certain risks, including potential loss of principal. Investment return and principal value in a bond and/or securities portfolio will fluctuate so that investments, when sold or redeemed, may be worth more, or less, than the original investment.

Investing in sectors may involve a greater degree of risk than investments with broader diversification. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Investing in emerging markets can accentuate these risks.