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PORTFOLIO LAGGING THE INDEXES? UPDATE 1 16 2022

 

DOW UP 8%?   WHY AM I UP ONLY 4%?

 

 

Many investors wonder why their investment portfolios don’t keep up with the major indexes they see on the evening news. Specifically there is the Dow 30, NASDAQ, S&P 500, the Russell and a plethora of other perhaps not so well known indexes whose coverages span the globe.

Indexes measure a basket of stocks that are in that particular index.

For example, the Dow encompasses 30 stocks thought to represent a broad base of industries in the United States. One cannot invest in the index per se, as it is only a measuring stick for the stocks in it.

Like many other indexes, their make-up is adjusted according to whatever metric the measuring method stipulates.  One can buy the stocks measured by the index, but because adjustments are made to that index from time to time, it would be difficult to mirror the index exactly.

There are funds that attempt to replicate the measuring metric of an underlying index, but the key word here is attempt. Most of these funds, however, do a pretty good job of at least coming very close to replicating in its movements the index underneath the fund.

Because these funds do mirror the subject index, if an investor holds one of these index proxy type funds, their portfolios will more or less follow the performance of the index.

Now to the question at hand: why does my portfolio not move with the indexes I see on the evening news?  In other words, if I see the Dow moved up 12% for the year, why did my portfolio move up only 4%?

The question is a good one because understanding the answer will also give an investor a better understanding as to how his portfolio is constructed. In other words, what does he hold and why does he hold it.

It is common for advisors and astute investors to adhere to at least some if not all of the Modern Portfolio Theory (MPT), which gives a matrix on what to hold in the portfolio and what percentages of each might be considered.

Not everyone might agree with MPT and their allocation percentages might differ, but MPT basically uses good common sense in its makeup of recommendations.  Quite simply, MPT recommends holding a basket of different stocks and industries, known as diversification, and adding to that a percentage of fixed income securities.

Fixed income are securities that offer a fixed or somewhat fixed rate of return, with more emphasis on a fixed rate of return (hence the name fixed income) in lieu of price movement (known as growth).

The thinking is fixed income can move opposite of stocks in price, and offer a set rate of return so the investor can rely on some sort of what I call “rent” money instead of relying on a stock going up in order to make money.

Fixed income is usually debt instruments such as bonds, notes or other type of debt, but also would include preferred stocks and certain funds and baskets that encompass similar securities. Fixed income, although has the word “fixed’ in it, does not mean the price cannot move and therefore does not mean it cannot go down in price. Fixed income holdings can move up and down. It is thought and historically so, that more often than not, fixed income can be more stable than traditional stocks.

Fixed income also has a tendency to move in the opposite direction of stocks, as investors gravitate from taking more risk in an up market and selling off their fixed income holdings to go for higher returns in stocks. When nervous however, investors may sell stocks and buy more fixed income for the perceived safer holding that fixed income historically has demonstrated. Hence their inverse relationships.

Because of the opposite movements of fixed income and traditional stocks, their price movements may often offset each other, and therefore handcuff the portfolio’s return when compared to the indexes in general and as a result, portfolio performance often lags the gains or losses of the major indexes.

 

Fixed income may lose money, and may at time moves in concert with stocks and do not guarantee against losses. Returns may not be guaranteed and MPT does not guarantee performance nor prevent losses. Past performance does not guarantee future results. Investing involves risk. You can lose money. Not a recommendation to buy or sell any securities and does not represent the opinion of any bank, RIA or brokerage firm. Mr. Cuniberti holds a B.A. in Economics with honors and hosts Money Matters radio on 67 stations nationwide. (530) 559-1214. California Insurance license 0L34249.

 

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What we do:

Marc is an experienced economic professional. For financial services click here: https://www.vantageauburn.com/marc-s-services

 

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Marc Cuniberti, award winning host of Money Matters and Money Management Radio, welcomes you to his updated website. Money Matters articles grace the pages of many newspapers and financial media. On this website, you can download any of his radio shows by subscribing on any website page. Sign up for his newsletter or learn about his opinions about the economic world around you by clicking around the site. Of course, the radio shows are the main reason the site is here, so look through the SHOW TITLES page to hear a variety of topics,one or more are certain to peek your interest and perhaps find a show(s) that apply to your particular interest or question. 

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There are many financial products in the market, and choosing the ones that best meet an individual client’s needs can be complicated.  Informed decisions about the products in any portfolio are best made after an assessment of individual needs.  Speak with Marc directly. It is that easy. 

 

Marc Cuniberti (530)559-1214

 

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Link to services here: https://www.vantageauburn.com/marc-s-services

 

Insurance can protect you and your family from undue hardship. Some life insurance policies also provide tax-advantaged savings that you can draw on to achieve goals like buying a house or retiring comfortably. I have access to a variety of insurance products that can help meet your security planning needs. No matter your personal situation—if you’re single or in a family; a professional or a seasonal employee; an executive or small business owner—we will work together to design a customized plan.

  • Life
  • Medicare
  • Long-term care
  • Fire Insurance
  • Auto
  • Business
  • Long Term Care
  • Liabilty
  • Event Liability
  • Annuities for income and growth

A Word about Life insurance:

In the event of death, life insurance may offer surviving family members financial security. As a tax-free lump sum payment, it can pay for final expenses and debts, as well as provide income for the deceased’s dependents.

 

The advantages of life insurance include:

  • An instant estate for your loved ones at a time when funds are most needed
  • Death benefits that are almost always non-taxable for named beneficiaries
  • Avoid probate costs if you name a beneficiary other than your estate
  • Potentially offer your loved ones creditor protection through some life insurance plans
  • Build tax-advantaged capital for retirement purposes or provide liquid savings through some permanent life insurance plans

 

Long-term Care, Disability and Critical Illness insurance, Lifetime income strategies and Medicare:

Help protect one of your most valuable assets – your income – from unexpected events through long-term care, disability and critical illness insurance.

Income is important for both current financial obligations (e.g. grocery bills and mortgage payments) and for future financial security (e.g. planning for your children’s education or for retirement). Just think what might happen if you suddenly lost your income stream through a long-term illness or disability.

Long-term care and disability insurance products help protect your ability to earn an income, which can be affected if you are afflicted by a disability or other condition.

Questions about Medicare? 

I can help navigage the programs.

I can also help you choose the long-term care and disability insurance products that provide advantages like:

  • May assist in transfer of assets. 
  • Help loved ones 
  • Assist with paying fixed expenses for your business if you become disabled
  • Support the buy-out of a disabled partner’s share of a business.

 

Critical illness insurance and Medicare Policies

Suffering a critical illness is distressing for both you and your family. Help ease the burden through insurance that will reduce financial stresses and can complement disability and life insurance protection needs. By helping pay for the additional expenses often associated with a critical illness or condition, insurance offers you, your family, and if applicable, your business, added financial security—so you can focus on recovery.

The advantages of critical illness insurance can include:

  • Coverage for up to 22 critical illnesses or conditions
  • An initial lump-sum benefit you can use however you wish—from making mortgage payments to seeking medical treatment outside Canada
  • Home-care costs during illness and recovery periods
  • Even if you’re not disabled from working, you may receive payment
  • The ability to provide a return of premium benefit (optional)
  • Individuals who cannot obtain disability insurance in some cases still qualify for critical illness coverage (e.g. a non-income earning spouse)
  • Medicare Policies and information. Let me walk you through the best options for your situation

Contact me today to determine whether critical illness insurance fits into your financial security plan.

 

There are also new “hybrid” plans available that combine the benefits of life insurance or annuities with long term care coverage and at a cost that may be more affordable than you think. Contact me today so we can assess your needs and develop the best strategies for your specific situation to give you the peace of mind you require and protect your family and loved ones.

 

Mark (Marc) Cuniberti- California Department of Insurance License # OL34249

 

Take a minute to contact Marc directly to schedule a no obligation phone call or meeting:

 

Email: mcuniberti@vantageauburn.com

(530)559-1214

Link for services here: https://www.vantageauburn.com/marc-s-services

 

 

This website expresses the opinions of Marc Cuniberti. Past performance does not guarantee results.

Insurance Solutions offered by Marc Cuniberti and not affliated with Vantage Financial Group.