There’s more to life than the S&P 500

“Why do I own anything other than the S&P 500?” is the question being asked of thousands of financial advisors across the land, going on two or three years now. With every passing quarter, diversifying away from large cap US stocks seems to make less and less sense to the lay person, who basically judges his or her portfolio against it no matter what.

The best an advisor can do is to remind clients that so long as their portfolio is accomplishing the goals as set out by their individualized financial plan, this is not particularly relevant. The second best they can do is to point out that it isn’t always the case that US large cap stocks trounce every other asset class on the planet for three years running.

A few reminders…

First of all, long-term treasury bonds, which everyone hated last January, actually gave you almost double the return of the S&P 500 last year. regardless of whether or not this “should have” happened, it did. You’ll find examples of this kind of inexplicable thing taking place during just about every year, regardless of the consensus narrative at the time. What makes more sense, guessing or preparing in advance for it?

Bonds Continue to Outperform Stocks (All Star Charts)

Second of all, there are plenty of long-term time frames during which bonds, foreign stocks and REITs beat the US stock market. Ben Carlson has the most updated data set I’ve seen on the average annual returns for these asset classes going back 15 and 20 years.

What Are Long-Term Stock Market Returns Telling Investors? (A Wealth Of Common Sense)

Third of all, as Michael Batnick explains, there will be lost decades for US stocks in the future, just as there have been in the past. But a lost decade for the S&P 500 doesn’t have to mean a lost decade for a portfolio, provided one can have the courage and the patience to hold other assets amidst a runaway bull market. The thing is, many people don’t and cannot deal with the idea that there is a bull market happening that they aren’t collecting the full benefit of.

What Lost Decade? (The Irrelevant Investor)

Fourth of all – and this is an important reminder from James Osbourne of Bason Asset Management – you have no way of reasonably predicting when one asset class will cease to dominate while another takes the lead. There is no pattern to be discerned from the annual return scoreboard.


The facts are the facts. The question for advisors is whether or not they are able to convey them effectively in the heat of the moment, when performance envy is everywhere and caution has taken a back seat to greed. Easier said than done, like most things worth doing.


Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

What's been said:

Discussions found on the web