How Did Your Portfolio Perform? Well, What Did You Expect?

In a recent newspaper article, I introduced the idea that reviewing year-end investment statements needs to move beyond a simple look at performance. Sure, one could compare a personal portfolio return to the 2012 return on the S&P 500. But unless you were invested in those 500 stocks for the entire 365 days, the comparison wouldn’t be accurate. (By the way, the S&P 500 gained 16% in ’12) Most investors have a mix of large-cap stocks and small-cap stocks, international stocks in both developed and emerging markets, not to mention some bonds and maybe some cash.  A meaningful evaluation of 2012 (or any given period) needs to be done in the context of expectations and actual portfolio construction.  What are your short-term and long-term performance expectations? How much risk are you willing to take to achieve those returns? Which asset categories are in your portfolio?

Can History Be Our Guide?

Between 1926 and 2011, large company stocks (as measured by the S&P 500) delivered an annualized average return of 11.77%, intermediate-term government bonds delivered 5.54% and inflation averaged 3.62%. A portfolio of half stocks and half bonds delivered an 8.9% average return during over those 86 years. During the decade ending in December of 2009, however, that balanced portfolio eked out less than 4% on average, while 2012 would have rewarded that balanced investor with above average gains approximating 9.25%. Historic data offer a shot-gun approach to investment returns verses annualized sharp-shooter accuracy.

Don’t Trying Keeping Up with the Jones

Investing needs to be viewed as a very personal endeavor.  After all, it is your money. For that reason, everyone needs to create a clear (and written) expectation for portfolio performance, and a specific (and, yes, written) tolerance for risk. This expectation needs to be documented whether you manage your own finances or have a professional advisor do it for you.  Portfolio expectations can be broadly generalized as long-term growth, current income or simple inflation hedge.  Once you’ve arrived at the general goal, build your expectations on long-term market averages, and allow adjustments for current conditions. As an example of current considerations; long-term returns for intermediate government bonds have averaged over 5.5%, but with historically low interest rates I would suggest near-term bond returns akin to those seen between 1940 and 1959, when bonds averaged less than 1.60%. Case in point, intermediate government bonds gains for 2012 were less than 2.5%.  Let the Jones chat up or bemoan broad brush comparisons to the “market”. Your sense of investing success needs to be tied to your personal expectations balanced with portfolio construction and risk (which we’ll discuss in a future post.)

Write It and Review It

Only by laying a realistic expectation for future performance can one truly evaluate personalized historic performance. So, keep a finger on the pulse of today, fix your eye and expectations on the horizon of tomorrows, and take a few moments to write down your performance goals for 2013 and the years ahead. As a final note, one-year does not a trend nor track-record make. Investing, my friends, is a long-term proposition.

OSBORN Wealth Management is a fee only advisory firm dedicated to providing conservative asset management, experienced retirement planning and unbiased financial advice. Blog posts are intended for informational and educational purposes, only, and are not an offer to sell. As individual's circumstances are always unique, please consult a professional before embarking on any changes to your investment, planning, tax or legal situation. For questions on this Blog post, or general inquiries about our professional advisory services, please give us a call at 219-362-8567 or email me at

SYNERGOS Financial Services d/b/a OSBORN Wealth Management is a Registered Investment Advisor currently registered in the states of Indiana and Michigan. The firm provides fee-only portfolio management and advisory services, and is not associated with any banks or broker-dealers. For more information, please view our current ADV filing.

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