Evaluating Your Account Performance And Your Advisor

I’ve found that when clients ask their stock-picking advisor about their performance lagging the S&P 500, the answer they often get is that they aren’t fully invested in the stock market. That their portfolio is balanced with fixed-income investments. The manager might say, “We’ve put part of your portfolio into safe investments like bonds. Those safe investments have a lower return than the market. That’s why your portfolio is underperforming the market.” This may all be true, but it avoids the point.

It’s important to take it one step further and examine how your stocks are doing against the overall market. In other words, how have the US stocks in your portfolio performed against the S&P 500 index? That’s the apples-to-apples question. Ask it, and all your advisor can do is show you the numbers. Specifically, they will have to show you what’s called “asset-class performance.”

When you see the results, remember that anything can happen in the short term. I suggest looking at the three- year and five-year comparisons. If your individual investments in US stocks are lagging that S&P 500 index over long time periods, you are losing money to opportunity cost—losing out on money you could otherwise have earned. Even if your stocks have appreciated in price and paid dividends but are lagging the benchmark, that investing strategy is destroying portfolio value rather than adding it.