Are your investment returns beating the market?

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A Mid 2017 Update

By Rick Kahler MS CFP®

The question isn’t as simple to answer as you might think.

First of all, “the market” isn’t easy to define. You can compare your investment returns to the Dow Jones Industrial Average, but that index is made up of only 30 large companies.

If your portfolio is properly diversified, it will include a much broader range of asset classes. My preference is eight or nine different classes held in index funds. A typical mix might include stocks from large, medium, and small companies in both the U. S. and foreign countries; international bonds; real estate investment trusts, commodities like wheat, gold, and oil; market neutral funds like managed futures; and Treasury Inflation Protected Securities.

It’s not really relevant to compare quarterly returns on such a diversified portfolio to the Dow.

Instead, many professionals recommend a four-part method to evaluate your portfolio’s performance in a more meaningful way:

  1. Take a long view.

The changes you see in a monthly or quarterly investment statement are purely the result of random movements in the market, what professionals call “white noise.” But you might be surprised to know that even one-year returns fall into the “white noise” category. It’s better to look at your performance over five years or more. It’s better still to evaluate through a full market cycle, from, say, the start of a bull market to the start of a new bull market.

However, you should remember that there are no clear markers on the roadside that say: “This line marks the start of a new bull market.”

  1. Compare your performance to your goals.

Suppose your financial plan indicates that your investments need to generate 2% returns above inflation in order for you to have a good chance of affording a long, comfortable retirement. If that’s your goal, chances are your portfolio is not designed to beat the market.

Instead, it represents a best guess as to what investments have the best chance of achieving that target return, through all the inevitable market ups and downs between now and your retirement date. If your real returns are negative over three to five years, that means you’re probably falling behind on your goals—and you might be taking too much risk in your portfolio.

  1. Recognize that some of your investments will go down even in strong bull markets.

The concept of diversification means that some of your holdings will inevitably move in opposite directions, return-wise, from others. Ideally, the overall trend will be upward—the investments are participating in the growth of the global economy, but not at the same rate and with a variety of setbacks along the way.

If you see some negative returns, understand that those are the investments you’re counting on to give you positive returns during times when other parts of your investment mix turn downward.

  1. When you look at your portfolio statements – don’t focus only on the bottom line.

Remember that the account total is only a snapshot showing the value of the account on one given day and that value constantly fluctuates, sometimes slightly and sometimes more widely.

Instead, make sure the investments listed are what you expect them to be. Look at the longer time periods rather than monthly or even quarterly changes. Notice which investments rose the most and which were down and you’ll have an indication of the overall economic climate.




Maybe your overall portfolio beat the Dow this quarter or over this year to date; maybe it didn’t. Either way, that variation probably only represents white noise!


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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

[Dr. Cappiello PhD MBA] *** [Foreword Dr. Krieger MD MBA]

Front Matter with Foreword by Jason Dyken MD MBA



One Response

  1. Yale’s Swensen sees low volatility as ‘profoundly troubling’

    David Swensen said the lack of market volatility in the current geopolitical environment is a major concern and warned that another crash is possible.

    “When you compare the fundamental risks that we see all around the globe with the lack of volatility in our securities markets, it’s profoundly troubling,” Swensen said. That “makes me wonder if we’re not setting ourselves up for an ’87, or a ’98 or a 2008-2009,” he said, referring to previous market crises.

    Pensions & Investments


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