Your Diversified Portfolio vs. the S&P 500

How global returns and proper diversification are affecting overall returns.

“Why is my portfolio underperforming the market?” This question may be on your mind. It is a question that investors sometimes ask after stocks shatter records or return exceptionally well in a quarter.

The short answer is that even when Wall Street rallies, international markets and intermediate and long-term bonds may underperform and exert a drag on overall portfolio performance. A little elaboration will help explain things further.

A diversified portfolio necessarily includes a range of asset classes. This will always be the case, and while some investors may wish for an all-equities portfolio when stocks are surging, a 100% stock allocation is obviously fraught with risk.

Because the stock market has advanced so much over the past decade, some investors now have larger positions in equities than they originally planned, and that may leave them exposed to an uncomfortable degree of market risk. A portfolio held evenly in equities and fixed income ten years ago may now have a clear majority of its assets in equities, with the performance of stock markets influencing its return to a greater degree.

Yes, stock markets – not just here, but abroad. U.S. investors have more global exposure than they once did. International holdings represented about 5% of the typical investor’s portfolio back in the 1990s. Today, they account for around 15%. If overseas markets struggle, the impact on portfolio performance may be noticeable.

In addition, a sudden change in sector performance can have an impact. At one point in 2018, tech stocks accounted for 25% of the weight of the S&P 500. While the recent restructuring of S&P sectors lowered that by a few percentage points, portfolios can still be greatly affected when tech shares slide, as investors witnessed in late 2018.

About Ryan LeBlanc 23 Articles
Ryan LeBlanc is a managing member and founder of LeBlanc Wealth Management. As a locally based LPL Financial Advisor, Mr. LeBlanc specializes in objective asset management and wealth preservation planning for clients across the Southern Region. As president, Ryan serves as an LPL Financial Advisor, branch manager and registered principal for LPL Financial. In addition, he currently holds the series 6, 7, 24, 31, 52, 63 and 65 securities registrations. A native of New Orleans, Ryan graduated from Jesuit High School prior to attaining a B.S. from the University of Alabama with a specialization in investment banking.

Be the first to comment

Leave a Reply

Your email address will not be published.


*