Is Your Retirement Portfolio Diversified Enough for this Market?

For investors who are heavily invested in the US markets, there may have been some disappointment when they saw their returns during the six month period ending in September. The S & P 500 has shown an 8.3% return year to date as of September 30th, but some overseas markets such as India (+24.7% over the same time period) have shown higher returns.¹

Portfolio diversification strategy is important for all investors. While diversification does not guarantee profit or protect against loss in declining markets, investing mainly in US stocks (or any single country or region) can be harmful to your portfolio and ability to reach your goals. The below chart demonstrates the importance of a balanced portfolio and shows how different markets and asset classes can perform well one year, and not so great the next year.

Asset Class Returns

(Click chart for larger version)

Source: Russell, MSCI, Bloomberg, Standard & Poor’s, Credit Suisse, Barclays Capital, NAREIT, FactSet, J P Morgan Management Asset Management. The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Barclays Capital Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period. Past performance is not indicative of future returns. Data are as of 6/30/14, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 5/31/14. “10-yrs” returns represent period of 1/1/04 – 12/31/13 showing both cumulative (Cum.) and annualized (Ann.) over the period. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures. Guide to the Markets – U.S. Data are as of 6/30/14.

Good Rule of Thumb – Don’t Chase Past Performance

Keep in mind, it is important to evaluate your overall investment plan and avoid making one common mistake: avoid chasing past performance, whether in mutual funds, stocks or money managers.

The chart above illustrates the difference in market returns for individual asset classes over time. For example, Emerging Markets (see MSCI EME) outperformed Europe, Australia and the Far East (see MSCI EAFE) and the S&P 500 in the second quarter of 2014.

Finding the Right Balance Between International and Domestic

To find the right balance for your portfolio, you should speak with your investment advisor and address a number of factors including your overall investment goals and your risk threshold.

It’s likely your balanced retirement portfolio will include a healthy mix of domestic and international investments. While it may be tempting to lean towards investments that performed well in the past, it may not be the best investment strategy and could end in disappointment. Your overall investment goals, your retirement plans and a number of other factors must be weighed carefully before determining what blend of investments is right for your needs.

Give one of our Wealth Managers a call today at (800) 541-7774 to discuss your portfolio. You can also get started on your investment plan by answering a few short questions here.

Source:

1 JP Morgan Guide to the Markets