By Haddon Libby
How did your 401k/investment account do in 2018? For most people, it was the worst year since the Great Recession of 2008. Now that January has reversed much of 2018 losses, check how your investment approach fared versus market averages (aka benchmarks).
To assess whether your returns were good, bad or so-so, it is best to find a benchmark that is representative of your investment portfolio. For example, if you are 100% in stocks and those stocks are based in the United States, the S&P 500 index represents the combine returns of the 500 largest companies in the United States. If you hold international stocks in addition to domestic stocks, a benchmark like Morningstar’s Global equities index is a good one as it consists of stocks from around the world including the United States.
To assess your performance starts with knowing how much you hold in equities and how much you have in fixed income. Morningstar offers five indeces that help most investors get an idea as to how their investments are doing: 85%+ Equity, 70-85% Equity, 50-70% Equity, 30-50% Equity and 15-30% Equity. If you are 100% in fixed income, consider Barclay’s Aggregate Bond Index.
One of the eight indeces below should fit your investment approach:
| Benchmark | 4th Quarter 2018 | January 2019 | 2008-2018 |
| S&P 500
(100% US Equities) |
-14.0% | 8.0% | 12.6% |
| Morningstar Global
(100% All Equities) |
-13.0% | 8.1% | 11.7% |
| 85%+ Equity | -13.7% | 8.4% | 10.1% |
| 70-85% Equity | -11.4% | 7.0% | 9.1% |
| 50-70% Equity | -8.6% | 5.7% | 8.3% |
| 30-50% Equity | -6.0% | 4.4% | 6.7% |
| 15-30% Equity | -3.2% | 2.9% | 5.5% |
| Barclay’s Aggregate Bond
(100% US Bonds) |
1.6% | 0.8% | 3.7% |
If your account earns less than those shown above, find a fiduciary advisor (like my firm), to do a free review of your portfolio and help you in figuring out why your returns lag. Fiduciaries advisors are different than broker advisors in that they must put your interests first. Broker advisors are allowed put themselves and their firms ahead of their clients.
Some people like looking at their equity holdings based on size:
| Benchmark | 4th Quarter 2018 | January 2019 | 2008-2018 |
| Large Cap | -13.3% | 7.7% | 14.8% |
| Mid Cap | -15.1% | 11.3% | 16.5% |
| Small Cap | -19.5% | 12.4% | 15.7% |
Within the split between large, mid and small companies, you will often hear that someone is a value or growth investor. What this typically means is that a value investor is more conservative and prefers a reliable stream of dividends while the growth investor is willing to take more risk and fewer dividends in return for faster capital appreciation:
| Benchmark | 4th Quarter 2018 | January 2019 | 2008-2018 |
| U.S. Value | -11.0% | 7.9% | 13.3% |
| U.S. Blend | -14.9% | 8.5% | 15.2% |
| U.S. Growth | -16.4% | 10.1% | 17.0% |
More sophisticated investors also look at the performance of their investments by category:
| (% of US Markets) Benchmark | 4th Quarter 2018 | January 2019 | 2008-2018 |
| 22% – Technology | -17.6% | 11.6% | 17.0% |
| 16% – Financials | -15.2% | 10.3% | 9.6% |
| 15% – Healthcare | -16.3% | 9.5% | 15.1% |
| 12% – Consumer Discretionary | -15.4% | 9.5% | 14.9% |
| 10% – Industrials | -18.3% | 11.0% | 12.1% |
| 7% – Consumer Staples | -8.9% | 5.9% | 11.1% |
| 5% – Energy | -31.1% | 15.0% | 0.4% |
| 4% – Real Estate | -7.2% | 10.6% | 11.5% |
| 3% – Utilities | -1.5% | 4.6% | 9.8% |
| 3% – Communications | -8.7% | 9.0% | 9.9% |
| 3% – Basic Materials | -17.9% | 10.0% | 11.5% |
What these charts show is that a patient and consistent investor did very well over the last ten years. Patience and consistency trump emotions and reactionary decision-making when it comes to investments.
By improving investment selection and paying attention to costs, you should improve returns which can be the difference between living in comfort and struggling in retirement.
If this is all too hard to understand, drop me a note and either myself or someone on my team will be happy to help.
Haddon Libby is the Founder and Managing Partner of award-nominated Winslow Drake Investment Management, a team of Fiduciary Advisors that always put the client first. To contact us, email Haddon at Hlibby@WinslowDrake.com or visit www.WinslowDrake.com.
