A quality lifestyle is reflective of an effective portfolio
Hapanowicz & Associates is an investment and wealth management firm based in downtown Pittsburgh. This the first of a series of occasional columns that Robert Hapanowicz and his daughter, Christina Hapanowicz, will be submitting. Robert is the author of this piece.
The Standard & Poor’s 500 Index is widely regarded as the best single gauge of large-cap U.S. equities.
More than 7 trillion in U.S. dollars is benchmarked to the index, with index assets comprising about 1.9 trillion of this total. The index includes 500 leading companies and captures about 80 percent coverage of available market capitalization.
There is a natural tendency to want to compare our portfolios to the Dow Jones Average or the S&P 500 because that is what the media defines as “the market.” This is misleading at best and dangerous at worst.
Very few of us actually invest in the S&P or Dow and, frankly, most of us don’t invest specifically to match the market, but rather to meet our personal income needs. As we wrap up 2018 and look ahead, it is my belief that you should be looking at your performance relative to your goals – not how one of the broader indices performed.
Most people have a very small portion of their portfolio in the Dow or S&P 500 and, while, there may be some general correlation, the performance of the benchmark has little to do with your portfolio or how well you are doing.
When looking at a benchmark – including the Dow or S&P – there is no consideration for your risk tolerance, tax situation and myriad of other factors that are relevant to you. If your goal is a balanced portfolio, with income and growth, you will tend to lag the 100 people equity benchmark when markets are going up – but do better when they are going down.
If someone wants to just look at performance, I suggest that individual create a benchmark reflecting their personal portfolio. In most cases, this will include international stocks, bonds, cash and large, mid- and small-size stocks.
Ultimately though, the true measure of success should be whether you can maintain and enhance your lifestyle over time. That is your benchmark.