Study after study has shown that beating the S&P 500 is over the long-term is nearly impossible. Yet, nearly every time I meet with a new investor, they ask the question, “How have you done against the market (S&P 500)?”
My reply is generally something along the lines of “is that what you’re looking for?” and their answer is either a look of confusion or a resounding “yes.” However, in further conversation, investors come to understand that this is the wrong question. It inevitably will lead them down a path of failed expectations and missed goals (in my previous column I detailed the importance of setting and understanding your goals).
Beating the S&P 500 sounds great, but it does little to help investors gain peace of mind. Moreover it may also be impractical and require taking on risks that are unacceptable to you.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You don’t have to look back far, 2008-09 is less than a decade behind us. If your portfolio lost 35% in 2008 and gained 3% in 2011, you beat the S&P in both years, so what? Neither seems an attractive return to me.
For the decade ending 2009 the S&P was flat, hardly impressive; and for the period between Dec. 31, 2009, and May 31, 2017, the index returned just over 26% annualized. While the latter is impressive, if you walked into my office and I told you that I have a strategy that has returned over 25% annually you’d rightfully assume that there must be incredible risks associated with this strategy.
My point is simply that benchmarking your goals and expectations to the S&P 500 or any other index is silly and impractical.
Instead of heedlessly chasing the S&P, investors should:
- Take account of their goals.
- Evaluate the costs associated with reaching these goals.
- Task their investment adviser with developing a plan that is likely to achieve these goals with the least amount of risk possible.
This column is the second in a six-part series. In my next column I will detail the importance of focusing on cash-flow generation from your portfolio instead of focusing on your expected investment returns, especially in retirement.
- Column 1: Understanding your goals
- Column 2: Why benchmarking to the S&P 500 is not a good strategy
- Column 3: It’s about cash-flow, not returns
- Column 4: How much are you paying for your portfolio?
- Column 5: 5 critical questions to ask your financial adviser
- Column 6: ‘Senior Inflation’ the not so silent retirement killer
-
The Most Popular Apps for Retirement Planning in 2025A J.D. Power survey ranks retirement planning apps based on customer service and satisfaction. Does your financial app make the cut?
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary FormsStandard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary Forms
Standard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
This Is How Life Insurance Can Fund Your Dreams NowBeyond a death benefit, life insurance can provide significant financial value and flexibility through 'living benefits' while you are still alive, helping with expenses like education, business ventures or retirement.
-
Potential Trouble for Retirees: A Wealth Adviser's Guide to the OBBB's Impact on RetirementWhile some provisions might help, others could push you into a higher tax bracket and raise your costs. Be strategic about Roth conversions, charitable donations, estate tax plans and health care expenditures.
-
One Small Step for Your Money, One Giant Leap for RetirementSaving enough for retirement can sound as daunting as walking on the moon. But what would your future look like if you took one small step toward it this year?
-
This Is What You Really Need to Know About Medicare, From a Financial ExpertHealth care costs are a significant retirement expense, and Medicare offers essential but complex coverage that requires careful planning. Here's how to navigate Medicare's various parts, enrollment periods and income-based costs.
-
I'm a Financial Planner: Could Partial Retirement Be the Right Move for You?Many Americans close to retirement are questioning whether they should take the full leap into retirement or continue to work part-time.
-
From Mortgages to Taxes to Estates: How to Prepare for Falling Interest RatesAs speculation grows that the Federal Reserve will soon start lowering interest rates, now is a good time to review your financial plans for housing, estate, taxes, investing and retirement to make the most of potential changes.
-
This Is How Lottery Winners Build Lasting Legacies, From a Financial ProfessionalWinning a massive lottery jackpot, like the recent $1.4 billion Powerball, requires seeking immediate legal and financial counsel, protecting your identity and winnings and planning your legacy.
