2015 not very exciting for investors, but there were some bright spots.
Investors saw some bumps in the road in 2015. The end of year numbers for the S&P 500 and the Dow Jones Industrial Average are the worst since 2008 at -0.81% and -2.2% respectively. That said there were some bright spots. The NASDAQ, for example, was up 5.7% and sectors like the consumer discretionary sector were up 8.4%. Having a significant spread from the bottom sector to the top sector in any given year is normal – in fact it is not uncommon for that range to be almost 100%. Through mid-December 2015 the spread was about 57% with the top ranked sector, U.S. Software, at 9% – the lowest ranked was non-ferrous metals at -48%. So in 2015 those investors who employed a sector rotation strategy, or were overweighted in sectors such as biotech, healthcare or internet typically fared better than the broad indexes; however, there were many more sectors below the zero mark than above.
“You can’t manage what you can’t measure.”
– management thinker Peter F. Drucker
Figuring out if the return you realized in 2015 was better or worse than it should have been is a bit more complicated than just comparing your number against an index like the S&P 500 or the Dow Jones Industrial Average. You have to factor in your risk exposure and overall allocation. For instance, comparing a portfolio comprised of 30% US stocks, 20% foreign stocks and 50% bonds against the S&P 500 doesn’t give you an accurate picture of how you did relatively speaking. The benchmark you need is at the very least the same mix of all three of those broad asset classes. Without an accurate benchmark, the raw number you earned has little meaning in terms of whether you, or your advisor, did well or not.
As we start the new year, if you are like many other investors, you may be thinking 2016 is the year to take a closer look and fine tune your portfolio. How would it feel knowing you can be confident that your investment strategy can adapt to a variety of market conditions and you know exactly how your portfolio is really doing? If you are not a client of ours and you are managing a portfolio of $250,000 or more – we would be happy to meet with you to give you an objective analysis of your portfolio.