AZ Asks Advisor Views

AZ Asks Advisor Views





Advisor Views

A feature from Ann Zuraw, Zuraw Financial Advisors, LLC. Advisor Views offers timely investment news and market updates designed to keep you informed, while enhancing your overall investment experience.


Your Portfolio and the S&P 500 Index: Compared to What?

Among the frequently asked questions we hear from clients still familiarizing themselves with our investment strategy is: “Why do my returns differ so much from the returns of the S&P 500 Index?”

Since the S&P 500 is one of the most popular gauges for how “the market” is doing, it’s tempting to assume one’s own portfolio should always perform at least as well as this well-known benchmark. But is it a fair comparison?

First, it’s important to note: Even though it’s commonly used as a quick-reference proxy for it, the S&P 500 Index is not “the market.” As its name implies, the S&P 500 tracks 500 of the largest U.S. company stocks. And that’s all it tracks. In contrast, via mutual funds or Exchange Traded Funds (ETFs), our clients’ balanced portfolios typically comprise between 5,000 and 12,000 securities from nearly 50 countries around the globe.

Thus, “the market” in which we invest is a whole lot bigger than the S&P 500. If you try to compare the entire market, or a particular component of it (such as international small company stocks), to the S&P 500, you’re in many ways comparing an apple to an orange.

Why don’t we simply build portfolios to capture the long-term growth of the S&P 500 Index? The long-term returns haven’t been so bad: about 10 percent from 1970–2010.1 And it would offer more certainty over where you stand, at least compared to this common benchmark.

The thing is, we have better things in mind for you:

It’s about you, not the market.

At its essence, we believe that investing is a tale of risk, and your specific goals in the face of that risk. The more market risk you accept, usually, the higher returns you can expect over time. But the risk is very real; not everyone is suited for it. Are you just starting out with time on your side? Are you in or near retirement, seeking to preserve what you’ve achieved? During the Great Recession, did you tolerate the risk, or panic and sell low? We believe your personal goals and risk tolerances—not the S&P 500 Index—should drive the components in your portfolio.

Tracking an index, and then some.

While investing in funds that track certain indices may be a beneficial strategy depending on one’s needs, we believe that investing in portfolios that more directly target the systematic returns that markets provide can offer additional value. When using these types of investments, your end returns may be an even more accurate representation of how various components in the markets have actually performed—such as stocks vs. bonds, large vs. small company stocks, domestic vs. international, etc.

Diversification is your friend.

By diversifying your investments beyond the S&P 500, we believe that you benefit in at least two ways: First, a broadly diversified portfolio allows you to spread the equity risk across many different asset classes that may include domestic, international, and emerging market securities, as well as growth and value stocks, while an allocation to shorter-term, higher quality bonds can help to mitigate volatility. Additionally, by blending various asset classes and risk levels into a cohesive portfolio that’s a good fit for you, you may be better positioned to stay on track toward your own long-term goals.

In short, we believe that investing is about clearly defining your personal financial goals and custom-crafting a portfolio to best help you achieve them. Your portfolio should have an appropriate (for you) globally diversified mix of risk and expected returns, and be tightly managed to help minimize unnecessary expenses. As far as the S&P 500 Index goes, remember: “the norm” isn’t always what it’s cracked up to be.

1Dimensional Fund Advisors, “The Benefits of Stock Diversification,”, accessed January 14, 2013.

Content written by Symmetry Partners, LLC. Our firm utilizes Symmetry Partners, LLC for investment management services. Symmetry Partners, LLC, is an investment adviser registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered, or excluded or exempted from registration requirements. All data is from sources believed to be reliable, but cannot be guaranteed or warranted. No current or prospective client should assume that future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Symmetry Partners, LLC), or any non-investment related content made reference to directly or indirectly in this article will be profitable. As with any investment strategy, there is a possibility of profitability as well as loss. Symmetry follows a passive investment strategy that involves limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance. Passively managed portfolios are designed to closely track their respective benchmark index rather than seek out performance. As a result, the portfolio may hold securities regardless of the current or projected performance of a specific security or particular industry or market sector. Maintaining investments in securities regardless of market conditions or the performance of a specific security could cause the portfolio to lose value if the market as a whole falls. Please note that you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Symmetry Partners or your advisor.

Using asset allocation and diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

All indexes have certain limitations. Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. Actual performance for client accounts may differ materially from the index portfolios. Past performance is not a guarantee of future results.

The S&P 500 Index measures the performance of large cap US stocks.

Ann Zuraw
Zuraw Financial Advisors, LLC


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About Ann Zuraw

Ann Zuraw, the voice behind "Chicks, Chat and Change", is a Certified Financial Planner (CFP®), Chartered Financial Analyst (CFA®), and Certified Divorce Financial Analyst (CDFA™). If you have comments on this post contact Ann Zuraw

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