First Quarter 2017 and You

First Quarter 2017 and You

by Monica Jennings on Apr 28, 2017

Investment Goals, Planning

“Is that all?”

I know I’ve had the experience of looking at the return of my portfolio and asking myself this question after being aware for a few months that strong returns were being reported in widely-watched market indexes.

What we saw among equity markets in the first quarter of this year was strong S&P500 performance (+6%) although emerging markets (+11%) and non-US developed markets (+7%) outperformed US equity markets. The value effect was negative across all three of those markets. And, while small caps outperformed large caps in emerging markets and non-US developed markets, they underperformed in the US.

In addition, fixed income holdings continue to perform modestly and alternative asset classes lagged their equity market counterparts.

Many of us hold a combination of these various asset classes in our portfolios. Yet, depending on what index you may have been focused on during the quarter, you could have had a vague sense of what you expected your rate of return to be based on that one index. That, in turn, could have led to disappointment in your actual reported return. When this happens to me, I might take the time to do a back of the envelope calculation of the weighted return I should have expected based on benchmarks. Inevitably, I’ll find that reality and expectation matched up pretty closely.

Whether my experience feels familiar to you or not, there’s a better way to process these situations than pulling out your calculator. One of my BAM ALLIANCE colleagues provided a good perspective on this and a reminder that can contribute to your ability to have a stronger overall investing experience—something far more important than what happens in any given quarter.


On March 1, the Dow Jones Industrial Average broke through the 21,000 barrier to close at a record high. And that’s after closing above 20,000 for the first time ever in January.1 In mid-February, the Dow, S&P 500 and Nasdaq each closed at record highs for three days in a row.2 During that stretch, the S&P 500 topped $20 trillion in market value and would later break briefly above 2,400 for the first time.3


These milestones received a lot of attention from the financial media, and the performance of these popular indexes is constantly reported, whether on TV, on the radio or in the newspaper. Clearly, “the market” has been doing very well, which might lead you to mistakenly evaluate your portfolio’s performance against the Dow or S&P 500. After all, you might think that your portfolio should at least be matching these basic indexes.


That would be a flawed comparison, though. The Dow and S&P 500 do not represent the entire market. In fact, they track only U.S. large-cap stocks. So unless your portfolio includes nothing but those stocks, its performance generally won’t track the Dow and S&P 500. The measure of the degree to which it differs — whether positively or negatively — actually has a name. It’s called “tracking error.”


Having a portfolio that performs differently from these indexes is a good thing because it means you’re diversified. Done properly, diversification can reduce overall risk without reducing returns. Your portfolio holds many types of investments and asset classes, and it is unlikely the Dow or S&P 500 matches your distinct mix of assets or their expected returns. There are years in which your portfolio will outperform the Dow or S&P 500, and other years in which it will not. Don’t fall for making an apples-to-oranges comparison because your customized portfolio, tailored to your goals, isn’t tracking a popular index.


Investing is about you, not the market. Your life goals, values and how you react to risk should shape your portfolio, not the Dow or S&P 500. “How am I doing?” is a fair question, but the answer should be measured against progress toward your goals, not some arbitrary stand-in for “the market.”


In the end, investing is not a competition, either against some index, some person or anything else. Rather, your investment strategy should be one facet of the comprehensive wealth management plan that was designed to accomplish your personal financial goals.


Perhaps it would have been more appropriate to have flipped the title of this article and made it “You and First Quarter 2017.”


1 MarketWatch: Dow Clambers Above 20,000 – Marks 2nd-Fastest Run to a Milestone in History
2 TheStreet: Dow, S&P 500 and Nasdaq Score New Records for Third Straight Day
3 CNBC: Dow Closes Above 21,000 as Stocks Post Best Day of 2017 After Trump’s Speech