“Every dog has its day” is a proverb that, loosely translated, means everyone will have good luck or success at some point in their lives. The reverse, unfortunately for investors, is also the case.
Every portfolio, at some point (perhaps at many points) will “under-perform.” There is nothing that can be done in terms of predicting it and the more activity that surrounds avoiding it – the more likely investors will be to hurt themselves permanently.
Everyone LOVES their portfolio when it is doing well, but the critical behavioral moment for any client portfolio is when it isn’t. This is when people begin to ask themselves whether they have the right plan in place and start to consider that they may need to make a change.
Now is just such a time for the diversified investor. If you are committed to diversification, as I am, then you have under-performed as you have continued to hold foreign stocks and perhaps small company stocks over the last few years when big, domestic (for the U.S. investor) companies have done so very well. And, you may be asking yourself these questions. If you have, please watch the video and make sure you understand this immediate past performance differential within the context of history.
The S&P 500 has been out-performing relative to it’s international and small company peers since 2011. If you had owned international companies or small capitalization companies, you would be under-performing the most vivid of American Stock Market indexes. The fear of missing out and the concern that we may have made a mistake is making investors question their commitment to diversification. At the same time, many pundits (including John Bogle and Warren Buffet) suggest one should concentrate in your home market (The S&P 500).
However, you can see in the video, the evidence suggests that immediate past performance is a poor criterion for selecting investments and Jonathan DeYoe warns investors against the siren song of concentrating their portfolios in that which has done well in the immediate past. There is a reason and lots of data that suggests continued international diversification is valuable to long-term investors.