Recently, I met with a client who raised an excellent question—though indirectly—about how their investment portfolio has performed compared to the returns they see reported in the media every day. It’s a common concern, and frankly, it deserves a clear and logical answer.
Financial news often highlights the performance of major indexes like the S&P 500 or the Dow Jones Industrial Average. These numbers can look impressive—or disappointing—depending on the day. But here’s the catch: most investors – certainly not our clients – don’t own a portfolio that mirrors those indexes exactly. Instead, they hold a diversified mix of assets designed to balance risk and return over time.
To address my client’s concern, I started by identifying an appropriate benchmark for their portfolio. This benchmark wasn’t just one index—it was a composite that reflected the different asset classes in their investment mix. Then, we broke it down:
- Large-Cap Stocks: Compared performance to major large-company indexes.
- Mid-Cap Stocks: Looked at mid-sized company benchmarks.
- Small-Cap Stocks: Reviewed small-company index returns.
- Bonds: Evaluated bond market indexes.
- International Stocks: Included global equity benchmarks.
When we laid these numbers side by side, the picture became clear. Diversification means your portfolio won’t soar as high as the hottest index in a bull market—but it also won’t plunge as deeply during downturns. Instead, it aims for steady, risk-adjusted growth over time.
Comparing your portfolio to a single headline index is like comparing a balanced diet to a single superfood—it’s not an apples-to-apples comparison. A well-diversified portfolio is built to weather different market conditions, not to chase yesterday’s news.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.