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Putting Your Portfolio's Performance in Perspective

By Craig Fehr January 02, 2019


A pickup truck and an Italian sports car are both automobiles, but you wouldn’t judge their performance on the same attributes: Pickups are for versatility, durability and longevity, while sports cars are for speed and agility. And so, you evaluate each vehicle through the lens of your needs. The same goes for your investments.

The stock market spent a good portion of 2018 ascending to new highs. These rallies raise the tendency for investors to ask, “Shouldn’t my portfolio also be setting record highs?” Stocks experienced two 10% pullbacks this year, the first calendar year to contain two market corrections in the S&P 500 in more than a decade. It’s in those periods when investors prefer portfolios that don’t resemble the market.

So as you evaluate your investment performance, consider the following:

1. Things change over time.

In 1982, the Dow included Sears Roebuck & Company, Eastman Kodak and Goodyear Tire and Rubber. Today there’s Boeing, Nike and Apple. The index’s makeup has changed with the economy over the last century; over time, your portfolio should also evolve along with your personal situation. Adjustments to your goals, time horizon and comfort with risk will influence necessary changes in the composition of your investments. As a result, you should anticipate the fluctuations and potential returns of your portfolio to evolve over time.

2. Performance isn't just gains.

Maximizing gains is not the sole objective of a sound financial strategy. Building a more balanced investment mix is intended to protect against the downside as well, so performance should be evaluated by the combination of return and risk. As the table shows, over the past two cycles, a balanced portfolio trailed during bull markets but experienced significantly less downside in bear markets.


Source: Edward Jones calculations. Stock market measured by the total return of the S&P/TSX Composite index and the S&P 500 index. Balanced portfolio measured by 65% stocks (equally weighted between the TSX and S&P 500) and 35% bonds (FTSE TMX Canada Universe Bond) rebalanced annually. Periods: 3/23/00-10/9/02, 10/9/02-10/9/07, 10/9/07-03/9/09, 3/9/09-12/31/17, 12/31/2017-10/31/2018, 3/23/00-10/31/2018.

3. Expectations are important.

Seeking higher returns from low-risk investments or chasing gains in investments that are riskier than you’re comfortable with can result in disappointment.

Make sure your expectations for your portfolio are:

  • Relevant (based on your goals, not a stock index)
  • Realistic (appropriate considering your investment mix, time horizon and market environment)
  • Reviewed (evaluated regularly and measured against progress toward your goals)

4. Use an appropriate time frame.

Your financial goals are longer-term – you should evaluate your progress toward them with the same perspective. Over the past 40 years, when evaluated monthly, the stock market was positive just 64% of the time. But by evaluating it over 10-year time frames, performance was positive 94% of the time.* Just this year, stocks posted historically strong gains in January and in the third quarter, while each of those periods was followed by notable pullbacks. Your performance should be looked at over broader periods of time and measured against the progress toward your goals.

5. Don’t forget about diversification.

In 2018, the S&P 500 delivered stronger gains in the January and midyear rallies, but fell by an average of 9.5% during the February and October pullbacks, whereas bonds and international stocks performed better in those periods. Over the last 10 years, there have been nine different asset classes in the top two spots for annual performance and seven different asset classes within the bottom two annual performers. Simply put, leadership rotates.

6. You can’t control the market, but you can control your actions.

We think economic and earnings growth will continue in 2019, making short-term pullbacks an opportunity to add to quality investments at lower prices, potentially helping your portfolio’s return. We believe the combination of positive economic growth, rising corporate profits and still-low interest rates sets the stage for the bull market to continue in 2019. However, risks are more prevalent, meaning market fluctuations will likely be more prominent along the way. To stay on track in this environment, we recommend:

  • Proactively rebalancing to ensure your portfolio stays aligned with your objectives
  • Being opportunistic when pullbacks emerge
  • Setting realistic expectations for returns and volatility

As a long-term investor, you generally don't own the stock market. Instead, you own a portfolio that is personalized to your situation. So your objective is not to match the market, but instead to navigate the terrain and stay on track toward your destination.

Important Information:

Source: * Morningstar Direct, 1/1/1977 - 10/31/2018. Stock market represented by the S&P 500. Past performance of the markets is not a guarantee of how they will perform in the future.

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