ITA Wealth Management

Why do investors fail to outperform one of the most common benchmarks, the S & P 500?

• As stock pickers they think they can cull out the best companies.  However, the best companies do not necessarily turn out to be the best stocks.  Research argues against stock picking for the average investor.
• The portfolio is not well diversified.  How many times have I heard investors argue that they are invested in all sectors of the market.  But investing in all sectors does not necessarily cover all asset classes so one can easily end up with a non-diversified portfolio.
• Investors do not have an investment plan.  There is little if any logic behind why the portfolio looks the way it does.
• Investors are not aware of research that would aid them in portfolio tilting.
• Investors do not keep accurate records.  Ignorance leads to under performance.
• Even if investors do keep accurate records, the software they use does not provide an accurate record of how well they are performing with respect to an index.  Without proper information the investor does not have a clue how well they are doing vs. an appropriate benchmark.  The spreadsheets available on Premium Content will take care of this problem so long as the investor maintains the spreadsheet.
• Investors do not understand the risk they are taking to achieve their returns.  This requires an additional software program and these programs are very difficult to find.
• Investors are not inclined to keep on top of their portfolio as it does take time.  Neglect can lead to under performance.

Clients following the construction and management of the seven portfolios over on Premium Content get a picture of what is involved if one is trying to outperform the S & P 500.  We set our sights a little higher and use the VTSMX as our benchmark.  Thus far we are succeeding in six of the seven portfolios.  However, four of the portfolios are very young and we need more data to make our case.  The older portfolios support our contention of the importance of asset allocation.

Lowell Herr

Photograph: St. Paul, France

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