Is it any wonder that the majority of actively-managed investment portfolios do worse than their benchmarks? For the first half of this year, all I heard on the business channels was how the market is overpriced and it is definitely going to fall, and the portfolios of these analysts were heavily in cash instead of being fully invested. These analysts claimed they would get back into the market when it was lower. If they could get back in when it is down 15%, they could save their clients from losing $150,000 on $1 million held in cash. The problem is, they got it wrong. Instead of being down and giving them a chance to buy in a lower price, the U.S. stock market is up 19% year to date. Instead of saving their clients $150,000, they cost their clients $190,000. Did they do their clients a favor by using that crystal ball they claim they have? Apparently not. The markets are unpredictable and very few successfully time the market. Sitting tight with an appropriate long-term portfolio would have made you a lot more money than following these overconfident portfolio managers. But their job is to convince you that they do have a crystal ball so that you might pay them $10,000 a year to manage your $1 million portfolio. Don’t be fooled into believing that high fees give you more. Investment managers that know how the markets work know that you can’t time the market and creating a portfolio and sitting tight with it is your best course of action. With 93% of actively-managed, large-cap mutual funds doing worse than their S&P 500 benchmark over the last 15 years, it should be clear that portfolio managers do not have the crystal balls they claim they have. (Past performance may not be an indicator of what to expect in the future and your individual circumstances should be considered in any investment choice. Investments in stocks can rise or fall in value, especially in the short run, and should only be the part of your portfolio intended for your long-term needs and not for money you may need in the short term.) Research: SPIVA Scorecard.
Larry Pike, CFA
Client Priority Financial Advisors LLC
www.clientpriority.com
