Statements are out and there is a lot of confusion about why account values are flat for the year when it seems the market was up. Matson Money sends out a market update with each quarterly statement and there is some great explanation of this in it.
Matson Quarterly Report
“In 2014 investors have been dealing with some deviation of the statement “The market is up and I am not.” Strangely enough it is commonly being positioned as exactly that, a statement of fact as opposed to a question of “why,”
In light of the simple statement above, it seems now is one of those times. This is due almost entirely to the fact that the S&P 500 was both flirting with and periodically achieving new highs, and simultaneously achieving abnormally high returns for the year.
The S&P 500 is 500 companies/stocks. That’s it. This is hardly indicative of “the market.” The market includes domestic and international equities. It consists of large cap, small cap, micro cap; value and growth; emerging markets, emerging small, and emerging value. Additionally, let us not forget about fixed income.
Matson Money portfolios hold 19 distinct asset classes. More specifically, asset classes that have some historically validated and intentionally designed dissimilar price movement, i.e. low correlation. They are engineered so as to not be dependent on any specific asset class – Globally Diversified.
This perception of underperformance or not seeing portfolio gains like the rest of the herd inevitably leads investors to feel the need to react and make changes to their portfolio. Unfortunately, this strategy is exactly the wrong approach.
It is worth remembering that there will always be an asset class that is out performing all of the others (as well as one underperforming). When it is the S&P though, everyone notices. They notice due to media spotlight, and because it makes up a disproportionate percentage allocation of many poorly diversified portfolios, thus making the news sadly relevant.
Discipline is not for the weak, but success is the long term reward for its maintenance. Focus and action resulting from the current year will be at the expense of an investor’s next twenty. Specific to Matson clients, no matter the current state of the S&P, know that investors are in a portfolio that is designed to dial into academically proven dimensions of return.
In the end, choosing a wise financial strategy – and sticking to it – will have tremendous impact on an investor’s long term financial health. Chasing performance through buying and selling is a risky game. Historically speaking, it will only reduce n investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions will help an investor bridge that gap between what the average investor makes and the return of the market. ” 1.
References
1. Matson Money. “Account Statement.” Letter to James Hancock. 1 Jan. 2015. MS. N.p.