Impediments to Gauging How Your Investments are Performing

It's clear that the stock market has gotten off to a bad start in 2016. Maybe less apparent was how challenging 2015 was as well. And what about 1987? The stock market was up over 5% that year (including dividends), which seems decent. Yet the 20% drop on October 19, 1987 probably didn't leave investors feeling too good about their portfolio at the time.

Our perception of market performance can be clouded by certain biases. In the case of 1987, it was a major traumatic event. The precipitous decline, however, was only one day. Scary? Yes. But there was no long-term impact if you hung in there as the market made new highs less than one year later. (Of course, I was a young lawyer at the time with no real savings, just a mortgage and an eight day old son.)

The difficulties last year were easy to miss since the S&P 500 Index eked out a small gain. But the broader investment universe in 2015 fared less well. The focus on just one aspect of investments -- large U.S. stocks -- may have prevented us from seeing the bigger picture.

 Taking a look at 2015 we can see there were many places to lose money and only a few to earn it (using common indices to measure returns):

Some areas that were up:

  • Large Cap U.S. Growth Stocks                 5.52%
  • U.S. Real Estate Investment Trusts         2.14%
  • U.S. Bonds                                                    0.55%

Some areas that were down:

  • Large Cap U.S. Value Stocks                    -3.13%
  • Mid Cap U.S. Stocks                                   -2.44%
  • Small Cap U.S. Stocks                                -4.41%
  • Foreign Stocks - Developed                       -0.81%
  • Foreign Stocks - Emerging                       -14.92%
  • Foreign Real Estate Investment Trusts    -3.76%
  • Energy Stocks (Global)                             -22.33%
  • Materials Stocks (Global)                         -16.70%
  • Utilities Stocks (Global)                               -7.01%
  • Commodities                                    -Up to 32.86%
  • U.S. Treasury Inflation Bonds                     -1.44%
  • Long-Term U.S. Bonds                                 -3.30%
  • High Yield U.S. Bonds                                   -5.03%
  • Foreign Bonds                                               -6.58%

These examples are just an annoying reminder that investments do not go straight up in a linear fashion. Declines take place. In addition, returns in different asset classes can vary. Long-term investors with a diversified portfolio can make money by realizing that they can be compensated by having patience and sticking to their game plan.



Patience is not very different from courage. It just takes longer. -- James Richardson