Your Diversified Portfolio vs. the S&P 500 and When Alzheimer's Disease Is Diagnosed
by Rita Wilczek on Aug 8, 2019
Your Diversified Portfolio vs. the S&P 500
How global returns and proper diversification are affecting overall returns.
Provided by Rita Wilczek
“Why is my portfolio underperforming the market?” This question may be on your mind. It is a question that investors sometimes ask after stocks shatter records or return exceptionally well in a quarter.
The short answer is that even when Wall Street rallies, international markets and intermediate and long-term bonds may underperform and exert a drag on overall portfolio performance. A little elaboration will help explain things further.
A diversified portfolio necessarily includes a range of asset classes. This will always be the case, and while investors may wish for an all-equities portfolio when stocks are surging, a 100% stock allocation is obviously fraught with risk.
Because the stock market has advanced so much over the past decade, some investors now have larger positions in equities than they originally planned, and that may leave them exposed to an uncomfortable degree of market risk. A portfolio held evenly in equities and fixed income ten years ago may now have a clear majority of its assets in equities, with the performance of stock markets influencing its return to a greater degree. 1
Yes, stock markets – not just here, but abroad. U.S. investors have more global exposure than they once did. International holdings represented about 5% of the typical investor’s portfolio back in the 1990s. Today, they account for around 15%. If overseas markets struggle, the impact on portfolio performance may be noticeable.2
In addition, a sudden change in sector performance can have an impact. At one point in 2018, tech stocks accounted for 25% of the weight of the S&P 500. While the recent restructuring of S&P sectors lowered that by a few percentage points, portfolios can still be greatly affected when tech shares slide, as investors witnessed in late 2018.3
The state of the fixed-income market can also potentially impact portfolio performance. Bond prices commonly fall when interest rates rise, which presents a short-term concern for an investor. If a bond is held to maturity, though, the investor will receive the promised principal and interest (assuming no default on the part of the issuer). Moreover, a rising interest rate environment may help the fixed-income segment of the portfolio’s long-term performance. New bonds issued in a rising interest rate environment have the potential to generate more yield than the older bonds of similar duration that they replace.4
This year, U.S. stocks have done well. A portfolio 100% invested in the U.S. stock market in 2019 would have a year-to-date return approximating that of the S&P 500. But who invests entirely in stocks, let alone without any exposure to international and emerging markets?5
Just as an illustration, assume that there actually is a hypothetical investor this year who is 100% invested in equities, as follows: 50% domestic, 35% developed foreign markets, and 15% emerging markets.
In this illustration, the S&P 500 will serve as the model for the U.S. market, MSCI’s EAFE index will stand in for developed foreign markets, and MSCI’s Emerging Markets index will represent the emerging markets. Through the end of July, the S&P was +18.89% year-to-date, the EAFE +10.31% YTD, and the Emerging Markets just +7.38% YTD. As foreign and domestic stocks have equal weight in this hypothetical portfolio, it is easy to see that its overall YTD gain would have been less than 18.9% as of the July 31 closing bell.6,7
Your portfolio is not the market – and vice versa. Your investments may return less than the S&P 500 (or another benchmark) in a particular year due to various factors, including the behavior of the investment markets. Those markets are ever-changing. In some years, you may get a double-digit return. In other years, your return may be much smaller.
When your portfolio is diversified across asset classes, the highs may not be so high – but the lows may not be so low, either. If things turn volatile, diversification may help insulate you from some of the ups and downs that come with investing.
Rita Wilczek may be reached at (952) 542-8911 or email@example.com
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - money.com/money/5481891/this-is-how-much-money-you-should-have-in-stocks-at-every-age/ [12/18/18]
2 - forbes.com/sites/simonmoore/2018/08/05/how-most-investors-get-their-international-stock-exposure-wrong/ [8/5/18]
3 - cnbc.com/2018/04/20/tech-dominates-the-sp-500-but-thats-not-always-a-bad-omen.html [4/20/18]
4 - fidelity.com/viewpoints/investing-ideas/fed-rate-hike-worries [4/23/19]
5 - investopedia.com/ask/answers/12/beating-the-market.asp [6/25/19]
6 - us.spindices.com/indices/equity/sp-500 [7/31/19]
7 - msci.com/end-of-day-data-search [7/31/19]
When Alzheimer’s Disease Is Diagnosed
Part of a series on how to care for your aging parents.
Provided by Rita Wilczek
Imagine the outlook for your life changing in minutes. A diagnosis of Alzheimer’s disease can be that stunning. If your parent is diagnosed with Alzheimer’s, how can you help them as they strive to make the most of the years ahead?
An Alzheimer’s diagnosis may bring stages of grief and anxiety – when and how should your parent share the diagnosis with loved ones, friends, and colleagues?
Sharing the news is part of coping with the news. If Mom or Dad tries to hide their Alzheimer’s from family members, friends, or even coworkers (if they are still working), it could inevitably lead to tension and stress. They may already have a diagnosis, or at the very least, be suspicious of one.
Some of your parent’s friends may not know how to respond to the news. But if they are open with those friends about their diagnosis – and how they are trying to cope with it – it can help to reduce any confusion and apprehension. Some of their acquaintances may shy away; their true friends will not.
As the Alzheimer’s Association notes to those finding out they have the disease, “You are the only person who can change how you feel about your diagnosis.” Many people in the early phase of Alzheimer’s learn that they must be proactive – they must build a care team of family, friends, doctors, and caregivers for the present and future, and additionally, seek out support groups. Simply waiting for the world to help is never the route to take.1
Your parent(s) will need to come up with a coping strategy. To stay engaged with the world, stay active as long as possible, and keep meeting the challenges of daily life, your parent will need a plan. It can be fine-tuned as needed.
The Alzheimer’s Association identifies three key steps of all such coping strategies: identify, prioritize, and strategize.2
What tasks do Mom or Dad have the most trouble with? Can someone help them accomplish them, while your parent remains wholly or mostly in charge, or should those tasks be assigned to a loved one or caregiver? Can the process of the task be simplified with fewer steps, so that your parent can still keep doing it? There may be multiple ways to solve most of these issues. Let Mom or Dad know that asking for help is not an admission of weakness.
As an example, if Dad fears losing track of Mom at a mall or sporting event, both of them can wear the same color of shirt, so Dad can easily look at the color of his shirt and locate Mom.
Alzheimer’s affects not only an individual, but an entire family. It is an adjustment, and some spouses, siblings, and children adjust more quickly than others. Let Mom or Dad know that they should forthrightly express the degree of understanding and help they need from you. You understand they want to enjoy a full, rich life for as long as they can, and you want to be a good – no, great – son or daughter and help them as much as you can.
Families must also address future caregiving and financial aspects of living with Alzheimer’s. Meeting with a financial professional and/or an eldercare provider can help an individual, couple, or family arrive at a ballpark estimate of extended care costs. Perhaps the place where your parent lives can be modified to permit “aging in place” for a very long time with the help of caregivers.
Where can families find help? The Alzheimer’s Association maintains a website, communityresourcefinder.org, where you can find local programs, resources, and service providers responding to the needs and wants of those with the disease.
Make sure to get a second (or third) opinion. Is it actually Alzheimer’s? Be sure. No diagnosis of Alzheimer’s is made cavalierly, but sometimes, less-common neurological disorders (such as Lewy body dementia, Pick’s disease, Creutzfeldt-Jakob disease, and frontotemporal dementia), which may initially present similarly to Alzheimer’s disease, might be overlooked. Under such circumstances, years may pass with both the patient and caregivers believing the patient has Alzheimer’s, when in fact, that is not the case. A plan of care may be established, seeking to adapt to or even delay the progression of Alzheimer’s, when another one might actually be more appropriate.
Invest in Mom or Dad’s joy. This is no time for your parent to retreat from life; this is a time for them to live fully, each and every day. While they may need to explore adaptations to activities they love, or find new ones altogether, they should continue to pursue their passions, as their minds and bodies permit. In time, they will simply live in the moment; resolve to share as many precious moments as you can with them, today and tomorrow.
Rita Wilczek may be reached at (952) 542-8911 or firstname.lastname@example.org
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 - alz.org/help-support/i-have-alz/know-what-to-expect/just-diagnosed [8/1/19]
2 - alz.org/help-support/i-have-alz/live-well/tips-for-daily-life [8/1/19]