Can you beat the Market?

This is a question which has been asked and debated for decades.  I have a question for the person asking the question; What market are you referring to?

Most people default to the stock market.  Many investors nearing or in retirement don’t want all their money in the stock market.  Many people do not want more than half of their money in the stock market, possibly even much less.  As an Advisor who does comprehensive work for clients, every client is unique. Client objectives and solutions are unique.

Beating the stock market is a random exercise in the short term as there are so many unpredictable factors affecting stock prices.  Over the long term, the stock market volatility and anomalies tend to smooth out whereby we see very little difference in stock market performance over 15 years, 20 years and 25 years.  Our firm has a process seeking the best net returns in every stock market asset class.  This process doesn’t guarantee success.  But, this article is not about the stock market.

What is your rate of return benchmark for money not in the stock market?  Investments strategies, not involving the stock market, are much more predictable than the stock market.  Increasing your rate of return, without increasing investment risk, is an objective many people have.  In this interest rate environment, I see a significant, and more predictable opportunity, for clients to increase return on their money they do not want in the stock market.  Cash is typically earning a fraction of a percent.  Many, not all, bond funds are negative in 2018, likely due to interest rates increasing.  When I review portfolios held at other firms, any historical underperformance is often with investments outside the stock market.

Here is a hypothetical example of my point.  A prospective client, with moderate risk tolerance, has a portfolio with 50% in the stock market and has earned 6% over the past nine years.  This is good overall performance, net of fees, for someone taking moderate investment risk.  However, upon closer examination, the stock market has been very strong over the past nine years which “masks” the underperformance in non-stock investments.  If a person has 50% of their portfolio in stocks earning 10.5% and 50% of their portfolio earning 1.5%, then the overall performance is 6%.  With moderate risk tolerance, this client is meeting a reasonable standard of performance relative to risk.

It may be much more predictable to earn an extra 1-2% on the non-stock investments currently earning 1.5% than it is to improve on the stock performance already at 10.5% historically over this nine-year bull market.

An extra 1-2% is significant, regardless of the investment(s) in your portfolio.  Investment performance cannot be guaranteed, ever.  Critical thinking applied to your portfolio may be guaranteed.  Analyzing each segment of your portfolio relative to alternatives within the same risk tolerance, or less, may improve your overall performance net of fees.

If you are a client reading this, know this approach is applied to your money with our firm.  If you are a newsletter subscriber, not a client, then you and I should discuss how our Initial Case Analysis (ICA) may provide significant value, reporting on some of the above issues and more.